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US FI Rates, Equities Finish Strong Ahead Next Wed's FOMC

US TSYS
  • After a rocky start, Treasury futures are trading broadly higher late Friday, short end lagging with curves running flatter, 2s10s -6.119 at -61.515. Heavy two-way flow noted after March Core PCE climbed 0.3% vs. 0.2% est, the 1Q ECI up 1.2% vs. 1.1%.
  • Close to expectations, it’s technically the softest core PCE print since Nov’22 but clearly remains far stronger than the monthly rate consistent with the 2% target.
  • Services eased from 0.38% to 0.23% M/M whilst Bloomberg's calculation of non-housing core services fell from 0.35% to 0.24% M/M for its softest since Jul'22.
  • Treasuries marked session highs by midmorning (TYM3 115-12 (+20.5), trading sideways after a brief decline on stronger than expected Chicago Business BarometerTM, produced with MNI.
  • The barometer improved by 4.8 points to 48.6 in April. This was the highest reading since August 2022. Nonetheless, the headline index remained sub-50, thus signaling an eight consecutive month of contractionary business activity.
  • Focus turns to next Wednesday's FOMC policy announcement where a 25bp hike in could mark the end of the Fed’s hiking cycle. With rates above 5%, and sticky inflation fears offset by the tightening effect of banking sector woes, the FOMC is likely to move to a meeting-by-meeting policy beyond May, while retaining a bias toward further policy firming.
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