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Slightly Richer As Core PCE Mostly Looked Through Ahead Of Payrolls

US TSYS
  • Cash Tsys have ultimately seen a broadly parallel rally today, with yields circa 3bps lower and for the most part back near where they were ahead of PCE data after being biased richer through European trade (the very long end being the exception).
  • The core PCE data was broadly as expected, including renewed strength in the supercore, although did have about as strong a monthly profile as could have been expected for Q2 after yesterday’s known net downward revision (including June no longer seeing a core PCE M/M rate consistent with the 2% target).
  • It meant the curve saw some intraday flattening as the long end rallied in the hours after PCE before the front-end then followed as the relatively modest trimming of cut expectations was then reversed.
  • We’re left with Fed Funds implied rates showing cumulative hikes of +3bp for Sep and +11.5bp for Nov to a terminal 5.45%, followed 51bp of cuts to Jun’24 and a cumulative 122bp of cuts to Dec’24.
  • TYZ3 equalled yesterday’s high at 111-03+ but failed to push on. Next resistance is seen at 111-13+ (Aug 11 high) although gains are considered corrective with support at 109-18+ (Aug 25 low).
  • Tomorrow of course sees the nonfarm payrolls report for August, see the MNI preview here, and is followed by Mester (’24 voter) offering a first reaction to it at 0945ET before ISM mfg at 1000ET.

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