Markets Expected More Dovishness From Powell

Markets Expected More Dovishness From Powell

AM data was a mixed bag that left bonds slightly weaker on the day, but not in an alarming way. GDP was mixed, coming in much stronger at the headline, but with lower domestic demand numbers. PCE prices were revised 0.2 higher for the quarter, meaning that tomorrow’s monthly PCE data has a 1 in 3 chance of being the culprit (slightly raises risk of higher inflation reading). But the day’s big focus was on Fed Chair Powell’s press conference. The announcement itself was inconsequential. Powell had a chance to get a bit more dovish in response to recent inflation data, but instead stuck to the exact same script (hoping tariff inflation is a one-off, but wants to wait and see, and has luxury of doing so based on 4.1% unemployment). Bottom line: no bone thrown to rate cut optimists = Fed Funds Futures priced in lower odds for near-term cuts.  This spilled into bonds only modestly, leaving 10yr yields in line with AM highs and leaving the broader trend as sideways as ever. 

Econ Data / Events

ADP Employment

104k vs 75k f’cast, -23k prev

Market Movement Recap

09:29 AM A hair weaker overnight with additional selling after data.  MBS down 5 ticks (.16) and 10yr up 5bps at 4.373

12:53 PM A bit of resilience heading into Fed announcement.  MBS down 2 ticks (.06) and 10yr up 4.3bps at 4.365

02:08 PM very small, friendly reaction to Fed.  MBS down 1 tick (.03) and 10yr up 2.6bps at 4.348

03:22 PM Weaker after Powell press conference.  MBS down 5 ticks (.16) and 10yr up 5.3bps at 4.374