The Morning Hark - 11 Aug 2023

Today’s focus... CPI reaction, PPI and Univ Mich Inflation Expectations

• The 30yr auction struggled and tailed by 1.4bps... not great given the concession in the curve into the auction.

• Weakness in sentiment from the US rolled over into the APAC session, with China property concerns adding to the broader risk aversion. Country Garden, Fantasia Holdings, etc (BBG)  

• JPY-crosses were quiet as a result of local holiday. 

• UK Q2 GDP beat expectations, but the BoE will be more focused on next week's inflation and wage numbers (ING)

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Reaction to CPI .... 

• 10% chance of a Sept Fed hike. The mkt tried to take the inline to softer CPI print and instigate the dovish "Fed's done" playbook with lower yields, softer USD and put money to work out the risk curve. The initial kneejerk reaction didn't stick with 10yr dipping to 3.94% on the print but closing the day 9bps higher around 4.10%, whilst 30yr rose from 4.18% to 4.25%. 

• ING argue there is "not enough yet for rates to fall", that "market rates are to remain elevated with a mild tendency to test higher given the robustness of US data and heavier supply".

• Key for JPow, supercore re-accelerating to 0.2% from prev 0.09% whilst YoY was 4.13% vs exp 4.0%.

• Furthermore, market gauges of longer-term inflation expectations (5y5y inflation swaps) continue their trend higher (Chart of the Day below)

• All the good news in the inflation print? Westpac point out that in "August, headline inflation is likely to be higher given the recent energy prices uptrend. And, over the next few months, core prices may also strengthen given the recent sizeable falls in a number of key sub-categories. But the trend into year-end continues to point towards six-month annualised inflation being around 2% at December, and annual inflation returning to target over the first half of 2024. Such an outturn would set the stage for rate cuts beginning March 2024 as per our forecast." 

• Scotiabank: "There is a lot more data before the Sept 20th FOMC decision including another CPI reading for August, another PCE reading for July, another nonfarm and wages report for August etc. If they had to decide what to do now then they’d have a solid case for another skip, but that could change, and there is also the matter of managing the next upcoming round of dots."

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1. The MacroTourist: Shoot 'em in the back... going short FANG+ futures

2. ING: US inflation boosts case for no further rate hikes

3. BBG: Inflation's Getting Better But Voters Just See higher Prices

4. FT: China sends finance experts to tackle regions’ debts

5. The Gryning Times: Inflation at Fed's Target

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All times in British Summer Time (BST)

US (13:30): PPI

US (15:00): Michigan Consumer Expectations

US (15:00): Michigan Inflation Expectations

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(Source @skylardaithi via Daily Chartbook #256)

 

 

 

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