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Market Roundup: Post-BOC Driven Narrative Shift - For Now

US TSYS

Tsys gapped to new session highs after the BOC hiked less than expected: 50bp to 3.75% vs. 75bp to 4.0% as "hikes beginning to weigh on growth" BOC Gov Macklem. Tsy yields were already extending lows as softer data cools expectations of more hawkish year end policy expectations - before 30YY fell to 4.1401% low on the annc.

  • Tsy futures scaled back support slightly in the minutes post-BOC, but are back near highs again amid debate over exogenous factor will really have on influencing the Fed's policy making over the next two meetings.
  • Despite a 0.075 rally to 94.98 in Dec Eurodollar futures, expectations of a 75bp hike on Nov 2 remains intact, chances of another 75bp in Dec continue to cool.
  • While last Fri's WSJ/Timiraos + Fed Daly comments over hiking too much have helped take the pressure off year end expectations, some pundits see risks swinging back towards hawkish again as Fed Chairman Powell likely to push back on less hawkish rate hike optimism and reiterate Sep messaging/DOT plot guidance.
  • Reminder, the next employment report (covering October) is on November 4 - after the FOMC. An in-line read will likely tip the scales back toward 75bp hike in Dec.
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