Goldman Recommend Short SFRZ3

Late on Friday Goldman Sachs noted that “Fed commentary has suggested a strong preference to slow down the pace of hiking.”

• “The inflation miss makes the step down at the upcoming FOMC meeting more likely, though Fed speakers appear to have been laying the groundwork for a slower pace irrespective of realized economic data.”
• “Markets repriced FOMC OIS beyond this December even more aggressively, both bringing the peak rate back below 5% and pricing additional easing beyond the (lowered) peak.”
• “While the details of the CPI report suggest there could be some downside risk to our current projected CPI path, we do not believe this materially changes the risks of hike cycle extension.”
• “Either combination - a higher terminal rate, but current levels of inversion, or the current terminal rate, but less deep inversion - argues for both higher end-2023 forward rates and a higher average level of rates over the next two years. In case of the former, the cuts being priced offset the hikes earlier in the year, leaving net Fed pricing for 2023 one of the least aggressive among G10, making SFRZ3 shorts attractive, in our view.”
• They recommended entering shorts at an implied rate of 4.37%, targeting a move to 4.70%, with a stop set at 4.10%.