A hawkish 50 bps cut by Fed yesterday has Fed Chair Powell signature all over it. While he time and again stressed that future action remains data dependent, we believe Fed has been dictated by market pricing rather than sound economic fundamentals. Fed Chair messaging was also inconsistent in the press conference where at one hand he continued to maintain US economy was doing strong & employment was still strong, raising long term rates but yet starting a rate cut cylce with 50 bps cut shows the natural dovish inclination of Fed Chair more than the committee itself. The committee sees only 10 vs 9 for another 50 bps cut in REMCY24. We continue to expect financial conditions might further loosen from here leading to more +ve data surprises on incoming economic data, specially labor. We expect bond yields to move higher especially 10yr bond yields. Our trade recommendations on both 1yr 1yr forward and 10yr US SOFR paid are doing well currently even after a 50 bps cut yesterday.
