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STIR: Dovish Reaction To Data As PCE Readthrough From PPI Looks Dovish

STIR
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Market reaction to the firmer-than-expected PPI data and lower-than-expected weekly jobless claims readings leans dovish, which goes against the first-glance logic.

  • This is explained by the PPI readthrough into the PCE data (set to be released on February 28) being more dovish, as detailed in our macro team’s initial reaction.
  • ~32bp of Fed rate cuts priced into Fed Funds futures through year-end vs. ~29bp ahead of the data and ~35bp leading into yesterday’s CPI release.
  • The next 25bp cut is fully discounted through November, with ~26.5bp of easing showing over that horizon vs. 23.5bp ahead of that data.
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Market reaction to the firmer-than-expected PPI data and lower-than-expected weekly jobless claims readings leans dovish, which goes against the first-glance logic.

  • This is explained by the PPI readthrough into the PCE data (set to be released on February 28) being more dovish, as detailed in our macro team’s initial reaction.
  • ~32bp of Fed rate cuts priced into Fed Funds futures through year-end vs. ~29bp ahead of the data and ~35bp leading into yesterday’s CPI release.
  • The next 25bp cut is fully discounted through November, with ~26.5bp of easing showing over that horizon vs. 23.5bp ahead of that data.