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Focus on CPI After Market Shrugs Off PPI Gain

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  • Treasury futures are back near session highs after the bell, well off session lows when rates reacted poorly to PPI final demand MoM coming out higher than expected (0.5% vs 0.3% est), YoY steady vs. 2.2% est.; PPI Ex Food and Energy MoM (0.4% vs 0.2% est), YoY steady vs. 2.2% est).
  • After Jun'24 10Y futures tapped a session low of 108-15 briefly before rebounding to early session high of 109-02 as markets digested softer airfare and insurance components and down revisions to prior data.
  • Midmorning focus turned to Fed Chairman Powell as he called for patience in allowing higher interest rates to do their work to slow the economy and bring inflation back to 2% but said his confidence in the path of disinflation has fallen.
  • Focus now turns to Wednesday's CPI, Retail Sales, TIC Flows and more Fed Speak. Consensus puts core CPI inflation at 0.3% M/M in April after a surprisingly strong Q1 averaging 0.37% M/M.
  • An upside surprise will dial up concerns that the Q1 acceleration wasn’t just a bump and could see 2Y Treasury yields eye 5% again, with the start point to Fed cuts pushed further out amidst a still high bar to a rate hike.
  • A downside surprise would still see sensitivity but the onus is on multiple low inflation readings before cut expectations are meaningfully brought nearer.
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  • Treasury futures are back near session highs after the bell, well off session lows when rates reacted poorly to PPI final demand MoM coming out higher than expected (0.5% vs 0.3% est), YoY steady vs. 2.2% est.; PPI Ex Food and Energy MoM (0.4% vs 0.2% est), YoY steady vs. 2.2% est).
  • After Jun'24 10Y futures tapped a session low of 108-15 briefly before rebounding to early session high of 109-02 as markets digested softer airfare and insurance components and down revisions to prior data.
  • Midmorning focus turned to Fed Chairman Powell as he called for patience in allowing higher interest rates to do their work to slow the economy and bring inflation back to 2% but said his confidence in the path of disinflation has fallen.
  • Focus now turns to Wednesday's CPI, Retail Sales, TIC Flows and more Fed Speak. Consensus puts core CPI inflation at 0.3% M/M in April after a surprisingly strong Q1 averaging 0.37% M/M.
  • An upside surprise will dial up concerns that the Q1 acceleration wasn’t just a bump and could see 2Y Treasury yields eye 5% again, with the start point to Fed cuts pushed further out amidst a still high bar to a rate hike.
  • A downside surprise would still see sensitivity but the onus is on multiple low inflation readings before cut expectations are meaningfully brought nearer.