Free Trial

MNI US MARKETS ANALYSIS - Odds of 50bp September Fed Cut Rise

Highlights:

  • Fed Funds show much greater odds of a 50bp cut from the FOMC next week after yesterday’s articles from the WSJ (including ex-Powell adviser Jon Faust saying it’s a “close call”) and the FT.
  • Greenback weakness is most noticeable against the Japanese yen, with its sensitivity to moves in core fixed income remaining at elevated levels.
  • Later today, we have preliminary UMich sentiment and inflation expectations data. 

US TSYS: Firmly Bull Steeper on Extension of 50bp Cut Speculation

  • Treasuries have extended the gap higher seen with the Asia open on increased speculation that next week’s Fed decision is a closer call between a 25bp or 50bp cut than markets had been expecting after this week’s CPI and PPI data.
  • Today’s scheduled focus is on inflation data, with international prices offering a last, albeit minor, potential tweak to core PCE estimates before U.Mich inflation expectations. Markets are also likely to remain on tenterhooks for any other (possibly clearer) blackout steers.
  • Cash yields range from 1.8-6.3bps lower, with 2Y yields leading declines.
  • 2s10s at 7bps (+3.3bp) hovers close to recent fleeting highs of 8bps, otherwise last higher in mid-2022. .
  • The bull steepening has increased through European hours, with the longer end pulling back more notably from earlier highs.
  • The long-end naturally lags but also sees additional impetus for the move after yesterday's 30Y auction tailed by 1.5bps.
  • TYZ4 sits at 115-13+ (+ 07+) on solid cumulative volumes approaching 400k. It’s off an earlier high of 115-18+ which eclipsed yesterday’s 115-17+ but remained below the 115-23+ seen pre-CPI.
  • The trend needle points north with further resistance seen at 115-31 (Fibo projection of Aug 8-21-Sep 3 swing) before the round 116-00.
  • Data: Import/exports prices Aug (0830ET), U.Mich Sep prelim (1000ET)

STIR: Odds of 50bp Sep Fed Cut Rise on Dovish Press Articles & Ex Fed Comments

  • Fed Funds show much greater odds of a 50bp cut from the FOMC next week after yesterday’s articles from the WSJ (including ex-Powell adviser Jon Faust saying it’s a “close call”) and the FT.
  • Former NY Fed President Dudley also sees a strong case for a 50bp cut, although that should be less of a surprise, as he previously pointed to the potential for such a move.
  • Cumulative cuts from 5.33% effective: 36bp Sep (28bp pre-WSJ), 75bp Nov, 116bp Dec (103bp pre-WSJ), 153bp Jan and 230bp June (215bp pre-WSJ).
  • OIS prices 33bp of cuts for next week.
  • Implied rates for the next two meetings are now only slightly higher than what was seen ahead of Governor Waller’s failure to express an explicit preference for a 50bp move post-payrolls.
  • Meanwhile, end-2024 rates have more than reversed the lift from a rental inflation-led core CPI beat.
  • We highlighted some key differences between the latest WSJ article and the 2022 steer. A reminder that the latter instance signalled an upsizing of rate hikes during a Fed blackout period.
  • Regarding the initial WSJ article, we wrote yesterday on the differences in the situation from its 2022 steer to upsizing hikes to 75bps. 

US TSY FUTURES: OI Points to Mix of Short Setting & Long Cover on Thursday

OI data points to a mix of short setting and long cover as Tsy futures settled lower on Thursday, with those positioning swings roughly offsetting in curve-wide DV01 terms 

Keep reading...Show less
1890 words

To read the full story

Close

Why MNI

MNI is the leading provider

of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.

Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.

Highlights:

  • Fed Funds show much greater odds of a 50bp cut from the FOMC next week after yesterday’s articles from the WSJ (including ex-Powell adviser Jon Faust saying it’s a “close call”) and the FT.
  • Greenback weakness is most noticeable against the Japanese yen, with its sensitivity to moves in core fixed income remaining at elevated levels.
  • Later today, we have preliminary UMich sentiment and inflation expectations data. 

US TSYS: Firmly Bull Steeper on Extension of 50bp Cut Speculation

  • Treasuries have extended the gap higher seen with the Asia open on increased speculation that next week’s Fed decision is a closer call between a 25bp or 50bp cut than markets had been expecting after this week’s CPI and PPI data.
  • Today’s scheduled focus is on inflation data, with international prices offering a last, albeit minor, potential tweak to core PCE estimates before U.Mich inflation expectations. Markets are also likely to remain on tenterhooks for any other (possibly clearer) blackout steers.
  • Cash yields range from 1.8-6.3bps lower, with 2Y yields leading declines.
  • 2s10s at 7bps (+3.3bp) hovers close to recent fleeting highs of 8bps, otherwise last higher in mid-2022. .
  • The bull steepening has increased through European hours, with the longer end pulling back more notably from earlier highs.
  • The long-end naturally lags but also sees additional impetus for the move after yesterday's 30Y auction tailed by 1.5bps.
  • TYZ4 sits at 115-13+ (+ 07+) on solid cumulative volumes approaching 400k. It’s off an earlier high of 115-18+ which eclipsed yesterday’s 115-17+ but remained below the 115-23+ seen pre-CPI.
  • The trend needle points north with further resistance seen at 115-31 (Fibo projection of Aug 8-21-Sep 3 swing) before the round 116-00.
  • Data: Import/exports prices Aug (0830ET), U.Mich Sep prelim (1000ET)

STIR: Odds of 50bp Sep Fed Cut Rise on Dovish Press Articles & Ex Fed Comments

  • Fed Funds show much greater odds of a 50bp cut from the FOMC next week after yesterday’s articles from the WSJ (including ex-Powell adviser Jon Faust saying it’s a “close call”) and the FT.
  • Former NY Fed President Dudley also sees a strong case for a 50bp cut, although that should be less of a surprise, as he previously pointed to the potential for such a move.
  • Cumulative cuts from 5.33% effective: 36bp Sep (28bp pre-WSJ), 75bp Nov, 116bp Dec (103bp pre-WSJ), 153bp Jan and 230bp June (215bp pre-WSJ).
  • OIS prices 33bp of cuts for next week.
  • Implied rates for the next two meetings are now only slightly higher than what was seen ahead of Governor Waller’s failure to express an explicit preference for a 50bp move post-payrolls.
  • Meanwhile, end-2024 rates have more than reversed the lift from a rental inflation-led core CPI beat.
  • We highlighted some key differences between the latest WSJ article and the 2022 steer. A reminder that the latter instance signalled an upsizing of rate hikes during a Fed blackout period.
  • Regarding the initial WSJ article, we wrote yesterday on the differences in the situation from its 2022 steer to upsizing hikes to 75bps. 

US TSY FUTURES: OI Points to Mix of Short Setting & Long Cover on Thursday

OI data points to a mix of short setting and long cover as Tsy futures settled lower on Thursday, with those positioning swings roughly offsetting in curve-wide DV01 terms 

Keep reading...Show less