Inflation outlooks improve on trade data

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Published Date 7/14/2023

This morning the 10 year note opened at 3.79% +2 bps and MBS prices began the day -27 bps. Yields across the curve declined on new beliefs the Fed may only have one more increase this year, in two weeks at the FOMC meeting. Inflation readings this week were widely expected to show declines, as reported June CPI and PPI were even lower than the soft forecasts.

More soft inflation news this morning with the release of June import and export prices. Month/month imports expected -0.3% were down 0.2%, year/year imports expected -5.9% dropped to -6.1%. Export prices month/month thought to be -0.3% reported down 0.9%, year/year -12.0% from -10.1% in May. Yesterday June PPI increased a puny 0.1%, PPI and Now import and export prices adds to the idea inflation will continue to soften. PPI was the lowest read since September 2020. Fifteen months ago (March 2022), PPI inflation was at 11.7%.

Current consensus is the Fed will increase rates again at the FOMC meeting in two weeks then call it quits, inflation data slowing led equity markets rallying for the best week since November. Look deep enough though, there are still many that are not believers and looking for at least two more increases. The Fed will do what markets are expecting now, one more bump for the FF rate.

Today begins Q2 earnings season with the large banks reporting. Above-consensus results from JPMorgan Chase and Wells Fargo.

At 9:30 am the DJIA opened +152, NASDAQ +37, S&P +9. 10 year note 3.78% +2 bp. FNMA 6.0 30 year coupon at 9:30 am -16 bps and -3 bps from 9:30 am yesterday, 5.5 coupon -30 bp and -5 bps from 9:30 am yesterday.

At 10 am the mid-month U. of Michigan consumer sentiment index was expected to have increased to 65.5 from 64.4 in June, the sentiment index increased, the current conditions increased, the expectations increased.

Source: TBWS

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