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Powell Drives Rally With Data Dependency Teeing Up Upcoming Releases

US TSYS
  • Front-end cash Tsys hold 6bps richer than just before the initial FOMC statement for -3bps on the day. After an unusually small reaction to the statement, 2Y yields saw an intraday rally of 10bps early into the press conference and have since then only partly pared some of the gains.
  • The presser leaned slightly dovish with reiteration of signs of progress for instance in labor market balance, played up the potential impact of tighter credit conditions and didn’t outwardly lean on some recent comments from other Fed staff that lags could be shorter than usual.
  • It 2YY -3.1bp at 4.843%, 5YY -4.2bp at 4.108%, 10YY -2.2bp at 3.863% and 30YY +0.8bp at 3.937%.
  • TYU3 trades 12 ticks higher on the day at 111-31+ off a high of 112-05+ that stopped comfortably short of 112-17+ (Jul 24 high).
  • FOMC-dated OIS suggests little net change in near-term meeting expectations, with +5bp for Sep and a cumulative +11bp for Nov to a terminal 5.44% with markets seeing an almost 50/50 chance of the second hike that the median FOMC participant pencilled in with the June dots. Cuts have built since the presser, but only to where they ended yesterday with 60bps from terminal to Jun’24.
  • With Powell emphasising data dependency, tomorrow sees an important docket with the 1st release for Q2 GDP, preliminary durable goods for July, jobless claims and other second tier releases (along of course with the ECB decision) before Friday's Q2 ECI and monthly PCE reports.

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