Tight Pre-FOMC Asia Trade

Tsys experienced a limited round of Asia-Pac trade, which is typical of pre-FOMC decision sessions, with a tech (Microsoft & Alphabet) earnings/guidance related bid in e-mini futures and an Australian CPI-related bid in ACGBs having little impact on the space. TYU2 deals -0-04 at 119-23+, sticking within a 0-06 range on sub-par volume of ~57K. Cash Tsys are flat to 0.5bp richer across the curve.

• Flow was headlined by block buys in TYU2 120.50 calls (+5.0K over 2 blocks) and FV 113.00 calls (+2.0K).
• Wednesday’s domestic docket Is headlined by the latest FOMC monetary policy decision, with consensus looking for a 75bp rate hike. Focus will be on Powell’s press conference and the Statement that accompanies the decision, assuming the 75bp hike is delivered. The key immediate question is re: the FOMC’s thinking on the magnitude of the next rate hike. A reduction in the size of hikes is likely starting in September, especially given weakening economic data and the ongoing moderation in inflation expectations. But for now the FOMC is likely to be non-committal, apart from saying that it anticipates ongoing hikes are appropriate (see our full preview here: https://marketnews.com/mni-fed-preview-july-2022 ).
• Note that the likes of the EDZ2/Z3 and EDZ2/Z4 spreads operate a touch above their deepest levels of inversion ahead of the FOMC decision, but the pullbacks have been shallow thus far. Elsewhere, the 3-month/3-month 18 months forward yield spread sits around the 55bp mark, hovering just above its own cycle flats.
• Wednesday will also bring the release of prelim. durable goods data, as well as pending home sales and MBA mortgage apps.