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Fed Rates Fade Soft Housing Data And Commodity Prices, Awaiting GDP/PCE

STIR
  • Fed Funds implied rates have held steady for the next two meetings and beyond that only drift 0.5-1bp lower on the day for Nov-Jan meetings.
  • Compared to the larger rally in Tsys, they have somewhat shrugged off a dovish existing home sales report and lower industrial commodity prices including iron ore and copper on what’s perceived by some as a lack of major new stimulus from the China Communist Party’s Third Plenum.
  • Cumulative cuts from 5.33% effective: 0.5bp Jul, 24.5bp Sep, 39bp Nov, 62bp Dec and 79bp Jan.
  • It still leaves implied rates close to highs seen since surprisingly soft US CPI on Jul 11, although continues to fully price three cuts with the January meeting.
  • A reminder that the FOMC is in media blackout for the Jul 31 decision. Flash PMIs for July offer some data focus tomorrow but with greater attention on GDP and PCE data on Thu/Fri.

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