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Rally Extends, Helped By Softer Details Undermining GDP Beat

US TSYS
  • Cash Tsys sits 5.5-9bp richer on the day, bull steepening as 2s lead the rally in an extension of yesterday’s Waller-instigated rally. 2s10s of -37.5bps (+3.5bp) sits back at mid-Nov levels.
  • The day’s moves started with a bias from softer external inflation in Australia and Germany, and were further supported by softer than expected US core PCE inflation and real personal consumption growth despite an overall upward revision to real GDP growth to an even stronger 5.2% annualized in Q3 (from an initial 4.9%).
  • Fedspeak hasn’t provided any pushback, with Bostic (’24) seeing evidence that tighter monetary policy is biting harder into economic activity and Mester (’24 voter retiring in June) reiterating she sees Fed policy on a good footing. The Beige Book then went on to show moderation compared to the mid-October update across output, pricing and labor markets.
  • It sees Fed Funds futures firmly pricing a first cut in May (cumulative 28bp), with 50/50 odds it comes in March, building to a cumulative 117bp of cuts through 2024.
  • TYH4 at 110-09+ sits off the earlier high of 110-15+ but has marked another strong extension of the bull cycle. Focus is on 110-25, a Fibonacci projection, whilst initial key support has been defined at 108-18+ (Nov 27 low).
  • Tomorrow sees the monthly PCE report, weekly jobless claims, the MNI Chicago PMI and pending home sales, before Chair Powell swings into focus on Friday.
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