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Weak Data Over 50Bp ECB Hike

US TSYS
Initially selling off after the ECB hiked 50bp this morning, Tsys reversed course after weaker than expected data - drifting near highs after the bell. Decent volumes (TYU2 1.5M) on wide ranges, yield curves mixed.
  • Tsys bounced on weak US data soon after: weekly jobless claims higher than expected at 251k vs. 240k, continuing claims 1.384M vs. 1.340M est, sharp miss on Philly Fed Mfg index at -12.3 vs. 0.8 est. Positive spin for stocks: data miss deemed positive in relation to watering down hawkish forward Fed expectations.
  • Second leg higher: Tsys continued to extend session highs with the rally in European core sovereign with the front-loading aspects and not moving an assumed terminal rate.
  • Underscoring rally: Huge 5Y Block buy: +40,000 FVU2 111-24, buy through 111-20.75 post-time offer at 0915:30, 111-27 last +11.75. Additional Blocks in second half: 5Y/10Y ultra-bond steepeners, weighted neutral.
  • Long end seeing selling by bank and real$ accts ahead midday. While a 75bp hike next week remains priced in, probability of a third consecutive 75bp move at the September meeting has started to ebb.
  • Friday data focus:
    • Jul-22 0830 S&P Global US Mfg PMI (52.7, 52.0)
    • Jul-22 0830 S&P Global US Services PMI (52.7, 52.7)
    • Jul-22 0830 S&P Global US Composite PMI (52.3, 52.4)
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Initially selling off after the ECB hiked 50bp this morning, Tsys reversed course after weaker than expected data - drifting near highs after the bell. Decent volumes (TYU2 1.5M) on wide ranges, yield curves mixed.
  • Tsys bounced on weak US data soon after: weekly jobless claims higher than expected at 251k vs. 240k, continuing claims 1.384M vs. 1.340M est, sharp miss on Philly Fed Mfg index at -12.3 vs. 0.8 est. Positive spin for stocks: data miss deemed positive in relation to watering down hawkish forward Fed expectations.
  • Second leg higher: Tsys continued to extend session highs with the rally in European core sovereign with the front-loading aspects and not moving an assumed terminal rate.
  • Underscoring rally: Huge 5Y Block buy: +40,000 FVU2 111-24, buy through 111-20.75 post-time offer at 0915:30, 111-27 last +11.75. Additional Blocks in second half: 5Y/10Y ultra-bond steepeners, weighted neutral.
  • Long end seeing selling by bank and real$ accts ahead midday. While a 75bp hike next week remains priced in, probability of a third consecutive 75bp move at the September meeting has started to ebb.
  • Friday data focus:
    • Jul-22 0830 S&P Global US Mfg PMI (52.7, 52.0)
    • Jul-22 0830 S&P Global US Services PMI (52.7, 52.7)
    • Jul-22 0830 S&P Global US Composite PMI (52.3, 52.4)