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Strong Data Weighs on Tsys, Rate Cut Projections Recede

US TSYS
  • Treasury futures gapped lower after stronger than expected in December, rising 0.55% M/M (cons 0.4) after a marginally upward revised 0.35% M/M (initial 0.28). The control group, which feeds into GDP, was the clear standout, jumping 0.76% M/M (cons 0.2) after a slightly upward revised 0.47% (initial 0.40).
  • A flurry of additional data kept Tsys anchored: Import/Export index come out higher (0.0% vs. -0.5% est) / lower (-0.9% vs. -0.7% est) respectively. Industrial production fared slightly better than expected in December, rising 0.05% M/M (cons -0.1) but the beat was offset by a downward revised 0.0% M/M (initial 0.2) in Nov.
  • March'24 10Y futures initially fell to 111-11 (-16) before trading down to 111-09 by midmorning, just above initial technical support at 111-06+ (Low Jan 05). Tsy 10Y climbed to 4.1268% high before finishing at 4.1019%. After climbing to the highest levels since October, curves bear flattened: 2Y10Y -8.268 at -24.833
  • This morning's data dampened rate cut projections for the first half of 2024: January 2024 cumulative -0.6bp at 5.323%, March 2024 chance of rate cut falls to -57.2% w/ cumulative of -14.9bp at 5.180%, May 2024 no longer pricing in 25bp cut -- currently at -85.6% w/ cumulative -36.3bp at 4.966%. June 2024 still pricing in a 25bp cut, cumulative -61.5bp at 4.714%. Fed terminal at 5.315% in Feb'24.
  • Cross asset summary: stocks weaker with S&P eminis -27.5 at 4771.0, oil near steady (WTI +0.27 at 72.67), Gold weaker (-22.60 at 2005.85).
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