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Market Roundup: Sharp Rate Hike Re-Pricing

US TSYS

How to square rate hikes and rate rallies? While Fed speakers bang on about another 75bp hike in July (Fed Gov Bowman, w/ additional 50bp hikes by year end) US rates continued to surge higher Thursday after second consecutive set of weak PMI data:

    • Mfg: 52.4 vs expected 56.0 and last of 57.0
    • Services: 51.6 vs expected 53.3 and last of 53.4
    • Comp: 51.2 vs expected 53.0 and last of 53.6
  • Not so much of a react after 229k weekly claims, 1.315M continuing claims slightly above estimates, 226k and 1.312M respectively.
  • Bonds lead the rally, USU2 climbs past overnight high to 137-29 by late morning, 30YY slips to 3.1438% low. Short yield curves reversed early bull steepening to flatter amid several rounds of Block sales in 2s and 5s; 2s10s -2.582 at 6.084 after climbing to 16.424 high after the bell.
  • Silver lining for stocks? Economic slow-down still not good news -- but it quells further rate hike pricing out the curve, while stocks hold moderate gains (ESU2 +29.5 at 3792.25) in late morning trade.
  • Eurodollar futures anticipated repricing earlier: near term recession expectations remain as futures inversion crept forward: Dec'22 currently trading 96.255 vs. Mar'23 at 96.31, w/ EDH3/EDH4 at -51.0. Interpretation: Since Wed's Senate testimony from Fed Chair Powell, futures pricing END of rate hikes has migrated from mid-2023 to end of this year. Pricing fluid as markets contend with ongoing slowdown.
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How to square rate hikes and rate rallies? While Fed speakers bang on about another 75bp hike in July (Fed Gov Bowman, w/ additional 50bp hikes by year end) US rates continued to surge higher Thursday after second consecutive set of weak PMI data:

    • Mfg: 52.4 vs expected 56.0 and last of 57.0
    • Services: 51.6 vs expected 53.3 and last of 53.4
    • Comp: 51.2 vs expected 53.0 and last of 53.6
  • Not so much of a react after 229k weekly claims, 1.315M continuing claims slightly above estimates, 226k and 1.312M respectively.
  • Bonds lead the rally, USU2 climbs past overnight high to 137-29 by late morning, 30YY slips to 3.1438% low. Short yield curves reversed early bull steepening to flatter amid several rounds of Block sales in 2s and 5s; 2s10s -2.582 at 6.084 after climbing to 16.424 high after the bell.
  • Silver lining for stocks? Economic slow-down still not good news -- but it quells further rate hike pricing out the curve, while stocks hold moderate gains (ESU2 +29.5 at 3792.25) in late morning trade.
  • Eurodollar futures anticipated repricing earlier: near term recession expectations remain as futures inversion crept forward: Dec'22 currently trading 96.255 vs. Mar'23 at 96.31, w/ EDH3/EDH4 at -51.0. Interpretation: Since Wed's Senate testimony from Fed Chair Powell, futures pricing END of rate hikes has migrated from mid-2023 to end of this year. Pricing fluid as markets contend with ongoing slowdown.