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Projected Yr-End Rate Cuts Revived Post Philly Fed MFG Index Miss

STIR
Reviewing short end rates reaction to this morning's Philly Fed Manufacturing index surprisingly weak April read of -31.3 from -23.2 prior (-19.3 est), approximate three year low.
  • The decline has spurred progressively higher SOFR and Fed Funds futures through 2025, with late 2023 through 2024 outperforming as projected rate cuts are revived.
  • Late 2023 projected rate cuts that had ebbed in the first half of the week are inching higher (but still well off last week's post-CPI highs: Nov'23 cumulative -7bp to 4.759%, Dec'23 cumulative -26.3bp at 4.566.Fed Terminal currently at 5.105% in July '23.
  • Fed funds implied HIKE for May'23 remains static, however, around 22bp, Jun'23 +28.5bp cumulative at 5.114%.
  • This remains derivatives traders focus as they attempt to anticipate forward policy moves at each of the next six FOMC meetings.
  • R.J. O'Brien trader Alex Manzara posited If he "were the Fed, I would NOT hike in May, even though the market is currently providing a nearly free pass. Signs of economic weakness are becoming more prevalent and tightened credit conditions have yet to work through the system. Rather than face criticism for tipping the economy into inevitable recession and be forced into easing, the Fed should HOLD rates but continue to jawbone for hiking in the future. It might be the difference between being able to keep rates relatively high throughout 2023 versus being forced into cutting."

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