Modest Dovish Fed Repricing On ISM Survey

The dovish repricing in FOMC-dated OIS extends a little on the back of the disappointing ISM manufacturing survey, but the move is modest and off extremes already.

• End of ’24 pricing moves to ~40bp of cuts vs. 37bp pre-data, while a full 25bp cut is now fully discounted through the end of the Nov FOMC.
• In terms of the breakdown, the rate of expansion in the prices paid component eased more than expected, but remain comfortably above the breakeven 50 mark, while the employment sub-metric unexpectedly jumped back above 50.
• The mix of a softer headline reading and still elevated price metrics chimes with the trend in the recent survey data (including MNI’s Chicago PMI release from Friday), although the unexpected expansionary print in the employment sub-metric probably limits the dovish feedthrough.
• A reminder that we saw the final round of pre-FOMC higher-for-longer Fedspeak over the weekend, via an FT interview with Minneapolis Fed President Kashkari (he suggested that the Fed likely to hold rates at current levels “for an extended period time”). The Fed is now in its pre-meeting blackout period.
• Such Fedspeak and the early ’24 inflation data (save April’s PCE and CPI readings) leave FOMC-dated OIS at the hawkish end of the early ’24 range.