Big Drop in Annual CPI, But Only a Cautious Rally So Far
Big Drop in Annual CPI, But Only a Cautious Rally So Far
Great news for bonds on the inflation front this morning: Core annual inflation came in at 2.6% compared to a 3.0% forecast and 3.0% last time. It's the lowest reading of the cycle and the first attempt to break below the stagnant sideways/elevated levels that have prevented more aggressive Fed rate cuts. Despite those facts, the bond market is only rallying moderately (but certainly rallying). Traders could be skeptical about the thoroughness of post-shutdown data collection, or this could foreshadow year-end bearish biases. Whatever the case, the data itself was better for bonds than anyone could have hoped for (and better than any economist predicted). NOTE: there is no month-over-month data due to the non-existence of October CPI.
Rallying after CPI data. MBS up a quarter point and 10yr down 4.4bps at 4.115
Off best levels. MBS still up 5 ticks (.16) and 10yr down 3.1bps at 4.127
MBS up 7 ticks (.22) and 10yr down 4.2bps at 4.117
Slightly More Focus Than Normal on Thursday's CPI
| Time | Event | Period | Actual | Forecast | Prior |
|---|---|---|---|---|---|
| Thursday, Dec 18 | |||||
| 8:30AM | Dec Philly Fed Prices Paid | Dec | 43.60 | 56.10 | |
| 8:30AM | Nov y/y Headline CPI (%) | Nov | 2.7% | 3.1% | 3.0% |
| 8:30AM | Dec/13 Jobless Claims (k) | Dec/13 | 224K | 225K | 236K |
| 8:30AM | Dec/06 Continued Claims (k) | Dec/06 | 1897K | 1930K | 1838K |
| 8:30AM | Dec Philly Fed Business Index | Dec | -10.2 | 3 | -1.7 |
| 8:30AM | Nov y/y CORE CPI (%) | Nov | 2.6% | 3% | 3.0% |
| 1:00PM | 5-Yr Note Auction (bl) | 24 | |||
| Friday, Dec 19 | |||||
| 10:00AM | Dec Sentiment: 5y Inflation (%) | Dec | 3.2% | 3.4% | |
| 10:00AM | Dec U Mich conditions | Dec | 50.7 | 51.1 | |
| 10:00AM | Dec Consumer Sentiment (ip) | Dec | 53.4 | 51.0 | |
| 10:00AM | Dec Sentiment: 1y Inflation (%) | Dec | 4.1% | 4.5% | |
| 10:00AM | Nov Exist. home sales % chg (%) | Nov | 1.2% | ||
| 10:00AM | Nov Existing home sales (ml) | Nov | 4.2M | 4.1M | |
