Tsys Twist Flatten Into CPI, Equities Cheapen A Touch

Cash Tsys have twist flattened ahead of U.S. CPI. We have flagged a sizeable upside risk to the consensus core CPI view (full preview here). Such an outcome could trigger at least some knee-jerk reaction in the FOMC-dated OIS strip (currently pricing ~5bp of tightening for next month’s gathering, followed by ~70bp of cuts by year end), although it is hard to tell what is already baked in given that many are aware of such risks.

• Elsewhere, debt ceiling-related comments remain a point of focus as the ‘X-date’ estimate of early June ticks closer. Yesterday’s meeting between President Biden and Congressional leadership was deemed “productive” by the former, with another meeting scheduled for Friday. Still, GOP’s McCarthy noted little movement in the negotiations, even as GOP’s McConnell attempted to play down any worry re: a looming default.
• E-minis traded on the backfoot pre-NY, with the relatively shallow downticks in those contracts exacerbated by sell orders triggered on a breach of Tuesday’s ES & NQ lows. Spill over from a downtick in mainland Chinese equities and the usual talk of pre-CPI “jitters” were noted, as was some early weakness in UK Gilts.
• ECB, Riksbank & SNB speak pad out the global macro docket today. ECB communique has already reaffirmed the need for further tightening, although President Lagarde failed to provide much in the way of specifics.