| Good morning. Bond traders again temper expectations for Fed rate cuts, UK shop inflation drops and Tesla may be set for a dour milestone. Here's what people are talking about. Bond traders priced in less monetary-policy easing by the Federal Reserve this year — briefly setting the odds of a first move in June at below 50% — after a gauge of US manufacturing activity showed expansion for the first time since 2022. Swap contracts for this year priced fewer than 65 basis points of reductions in the Fed rate — well less than the 75 basis points that US policymakers themselves are forecasting — after the ISM manufacturing for March exceeded all estimates in Bloomberg's survey of economists. US Treasuries steadied in Asian trading Tuesday, after falling across the curve Monday, while the yen flirted with fresh lows against the dollar. Inflation in UK stores dropped to its lowest level in more than two years as supermarkets compete to lure shoppers with cheaper prices. The rate of price rises slowed to a 1.3% annual pace last month, sharply down from 2.5% in February, the British Retail Consortium said Tuesday. The findings, which cover Mar. 1 to Mar. 7, offer encouraging signs that headline inflation is slowing and raise hopes for interest-rate cuts. The Bank of England held rates at a 16-year high last month, with Governor Andrew Bailey saying there's "still some way to go" to ease underlying pressures. An Israeli airstrike on Iran's embassy compound in Syria killed a number of people including a top military commander, Iranian and Syrian state media said, stoking tensions between the longtime adversaries. Oil prices advanced to near a five-month high as heightened geopolitical risks in the Middle East underscored supply concerns. Meanwhile, the US and Israel agreed to hold an in-person meeting to discuss their dispute over an expected Israeli invasion of the southern Gaza Strip city of Rafah. Prime Minister Benjamin Netanyahu had scrapped an earlier visit amid increasingly sour ties. Citadel founder Ken Griffin told investors he expects modest economic growth in upcoming quarters and cited US national debt as a "growing concern that cannot be overlooked." Griffin made the remarks in a letter to the hedge fund's investors Monday. In the letter, a copy of which was obtained by Bloomberg, Griffin said net interest spending is estimated to reach 3.1% of gross domestic product for 2023, citing Congressional Budget Office estimates. Separately, Bloomberg Economics ran a million forecast simulations on the US debt outlook, and 88% of them show borrowing on an unsustainable path. Tesla may be headed for a gloomy milestone as waning demand for electric vehicles and elevated interest rates take a toll on sales. Analysts rapidly lowered projections for this week's deliveries report as the quarter came to a close. Some on Wall Street are even braced for Tesla's first sales decline since the early days of the pandemic. On average, analysts surveyed by Bloomberg estimate that Tesla delivered 449,080 vehicles in the quarter. That would be down more than 7% from the company's record showing in the fourth quarter, which tends to be the best time of year for sales. European shares are on track to inch higher as traders weigh strong US data and the timing for Fed rate cuts. EU leaders discuss the bloc's strategic agenda at a dinner in Vilnius. The ECB issues its consumer expectations survey. A flurry of countries including France and Germany unveil manufacturing PMIs. It's a quiet day on the earnings front. This is what's caught our eye over the past 24 hours. Forgive me for being a bit shocked. But like you probably, the last few weeks lulled me into thinking Treasury volatility had gone away. March was a winner for Treasuries, but we've come back from a long weekend to a market in a bit of an uproar, dragging the US dollar up with it. Yields from two- to 30-years were all up more than 10 basis points at some point on Monday. Why? I would say it's a realization -- after comments by Federal Reserve Chair Jerome Powell and Fed Governor Christopher Waller and a strong ISM manufacturing report -- that Atlanta Fed President Raphael Bostic's comments last week about the Fed cutting just once are a sign of the direction of travel. Why cut if the economy is growing above trend? That was the question Powell posed on Friday. The result, we are now pricing in less than 63 basis points of easing this year, basically halfway between two and three rate cuts. What gets the market to decide more firmly on two or three cuts? Friday's jobs report. Anna Wong from Bloomberg Economics says a 4% unemployment rate would galvanize the Fed. On the other hand, a massive payrolls figure -- say 300,000 -- would reinforce Bostic's view. In the end though, these rate cut hopes are a double-edged sword. Cuts might sound good, but an economy that demands no cuts may be better for stocks than one that demands three or four. Ed Harrison leads the US FX/rates team and writes Bloomberg's Everything Risk newsletter. Follow him on X at @edwardnh. | 
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