Initial Hawkish PPI-Driven Fed Repricing Moderates

The firmer-than-expected PPI readings initially promote a hawkish repricing in U.S. STIRs, although the downside revisions help the move off knee jerk extremes.

• Elsewhere, a quick glance suggests that PCE readthrough is less worrying than the PPI figures (see previous bullet for further details), further countering the initial hawkish move.
• FOMC-dated OIS shows ~40.5bp of ’24 cuts vs. post-data extremes of ~38bp and pre-data levels of ~42bp.
• Sep FOMC pricing shows ~19bp of cuts vs. pre-data levels of ~20bp and post-data extremes of ~16.5bp.
• The first full 25bp cut is discounted come the end of the Nov FOMC (~27.5bp of cuts priced), little changed vs. pre-data levels of ~28bp. The contract briefly moved below fully pricing a 25bp cut through that juncture, showing close to 24bp in the wake of the PPI release.
• Immediate focus moves to comments from Fed Chair Powell later today and tomorrow’s CPI release.