/STIR: Dovish CPI & Fed Outcome Poses Slightly Greater Risk To Markets At Current Juncture

The latest J.P.Morgan Tsy client survey pointed to a reduction in long positioning, leaving both active and all client net positioning metrics at/close to neutral levels into today’s tier 1 risk events (CPI data and the FOMC decision).

• On the surface, this provides greater two-way risk, although the post-NFP & -ISM services 'hawkish' adjustment in perceptions may mean that a ‘dovish’ outcome provides a slightly more meaningful move for markets.
• Yields trade comfortably within multi-week ranges.
• Last week’s CFTC CoT (covering moves through Tuesday June 4) positioning was tilted towards the addition of net shorts, although broader net short positioning in futures is off cycle extremes. This also suggests that a dovish net reaction to the risk events could have a greater impact on the markets. A reminder that positioning in futures will be skewed by basis trades.
• Playing further into the narrative, FOMC-dated OIS is also skewed slightly more towards the hawkish end of the multi-week range, showing ~37bp of cuts through year end, with ~23bp of easing showing through the November meeting.
• The CPI release is set to point to incremental but insufficient process.
• Meanwhile, the Fed’s new Dot Plot is likely to show a shift in the Fed funds median to 2 cuts in 2024, versus 3 in the prior two editions, alongside a nudge higher in the inflation forecasts.