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UofM Infl Exp's Higher Than Estimated, Focus on Next Tue's CPI

US TSYS
  • Treasury futures holding mixed after the bell, off early session highs, short-end to intermediates underperforming. Curves remain flatter (2Y10Y -2.944 at -42.767) with the long end still outperforming. Currently, USZ3 trades 113-13 (+14), TYZ3 trades 107-15 (-2). Initial technical resistance for TYZ3 well above at 108-25 High Nov 3 and the next bull trigger. Initial support 107-08+ 20-day EMA.
  • Tsy futures pared gains after this morning's UofM data: lower Sentiment (60.4 vs. 63.8 est) and Current Conditions (65.7 vs. 70.6 est), inflation expectations higher than estimated: 1 Yr (4.4% vs. 4.0% est) 5-10 Yr (3.2% vs. 3.0% est).
  • As a word of caution, recall the Jun’22 preliminary report when 5-10Y expectations surprisingly jumped to 3.3% before being revised down to 3.1% in the finalized print. Powell noted that in last week’s FOMC conference when asking in Q&A. “I think the UM thing got blown out of proportion a little bit, it was actually a preliminary estimate that got revised away, and I said it was preliminary in it, but that didn't get picked up”.
  • Projected rate cut chance into early 2024 holds near late Thursday lows: December at 2.4bp at 5.352%, January 2024 cumulative 5.9bp at 5.387%, while March 2024 pricing in -16.5% chance of a rate cut with cumulative at 1.8bp at 5.346%, May 2024 cumulative -6.9bp at 5.260%. Fed terminal at 5.385% in Feb'24.
  • Slow start to the week ahead, focus on CPI Tuesday morning, CPI MoM (0.4% prior, 0.1% est), YoY (3.7% prior, 3.3% est)
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