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Strong Flash April US PMIs Take Air Out of Year-End Rate Cut

US TSYS
  • Treasury futures reverse early session gains to moderately lower after the S&P Global PMIs for April came out much stronger than expected (MFG 40.4 vs. 49.0; Srvcs 53.7 vs. 51.5; Comp 53.5 vs. 51.2 est).
  • Front month 10Y futures hit a pre-data high of 115-00 (3.4977% low yld) before falling to a post-data low of 114-13 (-8; yield rebounding to 3.5776% high) amid renewed selling ahead the weekend.
  • Reminder, Fed Gov Cook will discuss economic research at 1600ET before the Federal Reserve enters policy blackout at midnight tonight through May 4.
  • From a technical perspective, 10Y futures remain in a short-term downtrend and the recovery since Thursday is considered corrective - for now. The contract has recently traded through the 20- and 50-day EMAs and pierced 114-00. This signals scope for weakness to 113-23, a Fibonacci retracement.
  • Fed funds implied hike for May'23 remains largely static at 22bp, Jun'23 +29bp cumulative at 5.118%, while projected rate cuts later in the year receded following this morning's data: Nov'23 cumulative -5.2bp vs. 11bp earlier to 4.776%, Dec'23 cumulative -24.1bp vs. -31bp at 4.776%. Fed Terminal currently at 5.11% in Jul'23.
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