Investors Brace for Hot June CPI Report and So-So Retail Sales

  • Two factors will probably drive most of the price action this week and that’s Wednesday’s June CPI Report and Friday’s Retail Sales.


  • Also, in the background keeping pressure on prices will be reopening auctions of 10yr notes tomorrow and 30yr bonds on Wednesday. Those auctions should keep any rallies in check if not bring some selling pressure in order to move the new debt.


  • Pressure is likely to remain  into Wednesday when the June CPI report is released. Expectations are for another jump in the headline print thanks to contained gains in gas and food prices. The headline is expected up 1.1% for the month vs. 1.0% in May. The year-over-year is expected to hit a new cycle high of 8.8% from 8.6% in May. If there is another miss to the high side it will immediately increase speculation that the Fed could hike 100bps at its upcoming meeting instead of the current consensus view of 75bps.


  • Core CPI (ex-food and energy) is expected to increase 0.6% for the month and matching the gain in May. The year-over-year print is expected to decrease from 6.0% to 5.8%. That would continue the trend of core CPI moving in the right direction but also signals that with higher gas and food prices, no real relief is being felt in most households and that will keep the Fed firmly in hiking mode.


  • The PPI numbers on Thursday will get a glance from the market as wholesale price levels look to continue printing high, but at least not expected to move even higher. Overall PPI is expected up 0.8% matching the increase in May and moving the YoY to 10.4% vs. 10.8% in May. PPI ex-food and energy is expected up 0.5% also matching the increase in May. The YoY is expected to dip to 8.1% vs. 8.3% the prior month. The trend in PPI has been to see prices plateau if not moving a bit lower so the Fed will want to see that continue in June.


  • The week ends with June retail sales which are expected to increase 0.9% after a disappointing decrease of -0.3% in May. Sales ex auto and gas, however, are expected to be unchanged from May’s 0.5% gain. The control group – a direct feed into GDP- is expected to be up 0.3% after an unchanged reading in May.


  • With retail sales posted in nominal terms, and not inflation-adjusted, some of the shine comes off a solid-looking 0.9% overall sales number when inflation is expected to print 1.1% during the month.


Consumer Price Index (YoY)

Source: Bloomberg


Agency Indications — FNMA / FHLMC Callable Rates

Maturity (yrs) 2 Year 3 Year 4 Year 5 Year 10 Year 15 Year
0.25 3.11 3.19 3.26 3.38 3.60 4.06
0.50 3.10 3.16 3.20 3.27 3.46 3.95
1.00 3.09 3.13 3.17 3.23 3.37 3.82
2.00 3.12 3.11 3.15 3.25 NA
3.00 3.10 3.19 NA
4.00 3.14 NA
5.00 3.11 NA
10.00 NA

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Published: 07/11/22 Author: Thomas R. Fitzgerald