Market Reacts as if Rate Hikes Wont Last Much Longer

Tsys experienced a whip-saw session even before the after FOMC policy pivot, 25bp hike to 4.5%. Rates (and stocks: ESH3 taps 4160.75 high) gapped higher after initial two way flow, markets essentially saying any further hikes from the Fed will not run out the calendar very far. As Chairman Powell said himself: the "disinflation process has begun".

• Fed funds implied hike for Mar'23 at 20.4bp, May'23 cumulative 29.8bp to 4.882%, Jun'23 30.7bp to 4.890%, terminal at 4.89% in Jun'23.
• Early data reacts: Tsys extended early highs after ADP jobs data climbed +106k, much less than estimated 180k jobs.
• Fast two-way trade between Mfg PMI and ISM saw bonds sell-off/extend lows (30YY tapped 3.6429% high) as ISM mfg index comes out lower than est at 47.4 (48.0 est), mfg orders, production weakest since mid 2020. JOLTS job openings rise to 11.01M vs. 10.3 est..
• A sharp bond-lead sell-off likely driven by two large steepener Blocks: total +20,000 TYH3 at 114-29 to -28.5 vs. -8,700 USH initially from 130-19 down to 130-12. Tsy 30Y futures fell to 129-31 low by midmorning before staging a rebounding in the lead up to the FOMC.
• Focus now turns to Friday's employment report for January (+175k est vs. +223k prior).