Markets will be focused on Consumer and Producer inflation this week

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Published Date 5/13/2024

Unlike last week, this week is packed with economic releases. Trading was choppy in a very confined range last week; the 10 year note yield was unchanged on the week, MBS prices generally unchanged.

There are no economic reports Monday. Inflation data Tuesday and Wednesday are keys. This morning rates are improving, driven by the current estimates for PPI and CPI inflation forecasts, PPI not much but the CPI forecasts expect inflation to have declined a little from March to April.

The forecasts for PPI are for increases; the forecasts for the more sensitive CPI are lower, good news if it happens that way on Wednesday. Beside inflation data tomorrow and Wednesday Fed Chair Powell will be speaking tomorrow at the Annual General Meeting, Foreign Bankers’ Association, Amsterdam.

The pendulum has swung from rate cuts on the way to rate cuts not going to happen until later this year. Now the pendulum is back to its center, the only thing holding back the Fed now is softer inflation that based on the estimates will show inflation declining on the consumer price index (CPI). Weekly jobless claims last week jumped to the highest filings in nine months. Both the University of Michigan consumer sentiment index and the Conference boards consumer confidence index indicated consumers are increasingly concerned about their situations.

At 9:30 am the DJIA opened +95, NASDAQ +62, S&P +13. 10 year note at 9:30 am -3 bps at 4.47%. FNMA 6.0 30 year coupon at 9:30 am +14 bps from Friday’s close and +8 bps from 9:30 am Friday; the 6.5 coupon +11 bps and+7 bps from 9:30 am Friday.

Recent inflation reports have not been good for rates, last month CPI was higher than forecasts sending rates higher, March CPI overall expected +0.3% month/month increased 0.4%, year/year overall +3.5% as expected but up from 3.2% in February. The core CPI month/month reported +0.4% unchanged from February but up from forecasts at 0.3%; year/year core expected +3.7%, increased to 3.8%. The reaction was swift and deep, the 10 year note increased 13 bps to 4.50%. The point is inflation data has a recent history of not meeting forecasts.

This Week’s Calendar:

Tuesday

6 am April Small business optimism (88.3 from 88.5)

8:30 am April PPI (month/month +0.3% from +0.2%, year/year +2.2% from +2.1%, core month/month +0.2% from +0.2%, year/year 2.3% from 2.4%)

Wednesday,

7 AM weekly MBA mortgage applications

8:30 am April CPI (month/month +0.3% from +0.2%, year/year +3.4% from 3.5%, core CPI month/month +0.3% from +0.4%, year/year +3.6% from 3.8%)

April retail sales (+0.4%, ex vehicles +0.2%)

May NY Empire State manufacturing index (-10.0 from -14.3)

10 am March business inventories (0.0% from +0.4%)

May NAHB housing market index (51 from 51)

Thursday,

8:30 am weekly jobless claims (220K from 231K the prior week)

April housing starts and permits (starts 1.435 million from 1.321 million in March, permits 1.480 million from 1.458 million)

May Philly Fed manufacturing index (6.1 from 15.5)

April import and export prices (imports month/month +0.2% from +0.4%, exports +0.2% from +0.3%)

9:15 am April industrial production and capacity utilization (production +0.1$ from +0.4%, capacity utilization 78.4% from 78.4%)

Source: TBWS

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