Markets calm ahead of Consumer and Producer inflation data

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Published Date 1/10/2024

Rates have improved since late October on the assumption that the Fed will begin lowering rates. CPI tomorrow, always a key inflation read, is now more important with that optimistic outlook fading. To continue, tomorrow’s CPI must confirm inflation is slowing. The estimates for core CPI are for inflation to have slowed; month/month core expected to have declined from November from 0.3% to 0.2%, year/year 3.8% from 4.0%. If the forecasts hold rates will get support, if not rates will increase taking the bellwether 10 year note up to 4.10%.

Last week MBA mortgage applications increased 9.9% the biggest weekly increase over the last year. Purchase apps +6.0% while refinance apps increased 19%. MBA’s survey covers about 75% of all mortgage applications.

We have been bringing up the climbing US debt, this morning Bloomberg jumped in. Since early November the debt crisis was swept under the rug as inflation outlooks began to overtake concerns about funding it. Funding the debt here and globally will put a cap on how low long-term rates will go. Public debt across advanced economies has soared to more than 112% of GDP from about 75% two decades ago, data from the International Monetary Fund show. We are entering into government projections for 2024 borrowing, estimates are $2.1 trillion of new bonds to finance spending, an increase of 7.0% according to Bloomberg Intelligence.

At 9:30 am the DJIA opened +23, NASDAQ +25, S&P +5. 10 year 4.00% -2 bps. FNMA 6.0 30 year coupon at 9:30 am +15 bps from yesterday’s close and +23 bps from 9:30 am yesterday.

At 1 pm Treasury will auction $37B of 10 year notes.

CPI tomorrow and PPI on Friday are the last inflation data until January 26th when December PCE data will be released; the FOMC meeting is January 31st.

Source: TBWS

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