STIR: Navarro's NFP Comments Help Blunt Dovish Data Reaction

Dovish repricing initially seen in the USD short end as retail sales come in on the soft side of expectations (with negative revisions). The downside surprise in the ECI was modest, particularly when rounding is accounted for, while the import price readings were mixed.

• Prior weekly ADP data had little impact but reinforced the idea of a slowing labour market.
• Meanwhile, Peter Navarro, Counselor to President Trump, noted that the deportation of workers is impacting jobs data, which should factor into a revision of expectations for the labour market data, albeit stressing that he does not expect a weak outcome in tomorrow’s NFP release.
• The latter point helps counter some of the data-driven move after Monday comments from NEC Chair Hassett seemingly alluded to the potential for a downside NFP surprise.
• SOFR futures now flat to +3.5 on the day vs. 0.25-2.0 firmer into ADP. Implied terminal rate pricing on the strip at 3.10% vs. 3.11% pre-ADP
• FOMC-dated OIS showing 5bp of cuts for March, 11bp through April, 25bp through June, 35bp through July, 47bp through September, 52.5bp through October and 58bp through year end, little changed to 1bp more dovish vs. pre-ADP levels.