Cooler Inflation Numbers Continue to Roll In

  • First, it was the cooler-than-expected CPI report on Wednesday. That was followed by July PPI yesterday that printed negative for the first time since April 2020. That was joined this morning by a better-than-expected Import-Export Price Index.


  • Admittedly, this data series doesn’t carry the weight of the other two, but it does add to the story those reports told for the month. For July, import prices declined -1.4% MoM vs. -1.0% expected and a 0.3% in June. Ex-petroleum, prices were down -0.7% vs. -0.2% expected and -0.5% in June. That certainly adds to the softening in price pressures that was the story in the other price reports for the week and is working to lift Treasury prices.


  • Exports joined the price decline party as well with a monthly drop of -3.3% vs. -1.0% expected and 0.7% last month. The YoY rate, however, continues to reflect past price pressures at 13.1% but that is down from 18.1% in June.   The YoY rate peaked at 18.6% in May, so it does add to the peak inflation story.


  • Perhaps a more important release comes later this morning (10am ET) with the first look at the University of Michigan Consumer Sentiment Survey for August. The survey has been printing some dour consumer sentiments of late but with the drop in gas during the last 60 days, perhaps that will lift some moods. Expectations, however, are only calling for a minimal improvement from 51.5 to 52.5. If the print surprises to the upside it could pressure Treasuries with the consumer poised, perhaps, to spend more given those better moods.


  • The inflation expectations in the report will be a focus for the Fed and those are expected to improve. The 1yr inflation forecast is expected edge down from 5.2% to 5.1% and the longer-term 5-10yr inflation forecast is also expected to edge down a tenth to 2.8% from 2.9%. While those aren’t big moves the Fed will be pleased they are at least moving lower. That would buttress the case that the rate hikes to date are beginning to impact the market and sentiment, but that the job is far from over.


  • The big report next week will be the July Retail Sales Report with investors curious if consumers are spending that leftover gas money. Expectations are modest so a possible surprise to the upside could be had if the consumer is spending that free gas money. Keep in mind that the report is not inflation adjusted so declining gas prices and other items will cloud the report a bit.


  • Treasury prices are higher across-the-curve this morning as investors take advantage of the downside action Thursday, and with oil reversing some of its gains yesterday Treasuries are following suit from that as well. The market is leaning towards a 50bps hike in September, but the year-end rate still sits around 3.50%. However, with another jobs and inflation report due before the rate decision. a 50 or 75bps rate hike remains equally in play.

Source: Bloomberg


Agency Indications — FNMA / FHLMC Callable Rates

Maturity (yrs) 2 Year 3 Year 4 Year 5 Year 10 Year 15 Year
0.25 3.21 3.21 3.19 3.23 3.38 3.85
0.50 3.20 3.18 3.13 3.12 3.24 3.73
1.00 3.19 3.15 3.10 3.08 3.15 3.60
2.00 3.13 3.04 3.00 3.03 NA
3.00 2.95 2.97 NA
4.00 2.92 NA
5.00 2.89 NA
10.00 NA

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Published: 08/12/22 Author: Thomas R. Fitzgerald