Market volatility down ahead of CPI

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Published Date 1/11/2023

Treasury futures began climbing after yesterday's close, accelerating their rally toward the end of the Asian session. The recent push to fresh highs has been undone, but Treasury futures continue holding the remainder of their gains from last night. Once again, the overnight session saw a limited dose of economic and other news.

No news this morning that worries traders, it's all about CPI tomorrow. Dec CPI expected to confirm inflation is continuing to slow. Month/month 0.00% from +0.1%, yr./yr. 6.6% from 7.1%; core CPI ex food and energy m/m 0.3% from +0.2% but yr./yr. 5.7% from 6.0%. Beside CPI weekly jobless claims tomorrow expected 215K from 204K the week before.

Last week we noted that markets will determine interest rates rather than the Fed. The market itself will take the data and make decisions based on what investors believe at the moment. One of my favorite traders and analyst, Jeff Gundlach, CEO of DoubleLine Capital commenting yesterday, saying he prefers to pay attention to the bond market — not the Fed — for how interest rates will evolve. If that isn’t enough to confuse, Jupiter Asset Management's Ariel Bezalel, whose firm oversees $53B in assets, believes 10-year Treasury yields could fall as low as 2% this year. "There is enough data for the Fed to soon go on hold", Bezalel said, adding the central bank could cause a "hard recession" if they don't back off soon.

At 9:30 am the DJIA opened +138, NASDAQ +58, S&P +19. 10 yr. 3.58% -4 bps. FNMA 5.5 30 yr. coupon at 9:30 am +19 bps from yesterday and +5 bps from 9:30 am yesterday.

At 1 pm Treasury will sell $32B of 10s re-opening the issue last Nov. Yesterday’s 3 yr. auction was well bid, the decline in the dollar adding support.

Source: TBWS

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