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June CPI Inflation Miss Rekindles Rate Cut Pricing, Little Fed Pushback

US TSYS
  • Treasury futures gapped higher after June CPI inflation data came out lower than expected, curves bull steepened as rate cut pricing into year end gained momentum.
  • Supercore (services ex-housing) inflation printed negative again, at -0.05% (-0.04% prior), vs +0.27% expected, for the first back-to-back deflations since Aug-Sep 2021 (the lowest analyst expectation we'd seen was Nomura's +0.15%). Overall core services printed just +0.13%, vs +0.32% MNI avg (and 0.22% May), the lowest since August 2021.
  • Overshadowed by the surprisingly soft CPI report, jobless claims data offered the first week since early May with both initial and continuing claims coming in lower than expected.
  • Little pushback from the Fed: San Francisco Fed President Mary Daly said Thursday that policy "adjustments" appear to be warranted at some point because the central bank's dual mandate goals are coming into better balance, while saying the exact timing of a move is less important than keeping the economy on track.
  • Treasury support waned slightly after the $22B 30Y auction reopen (912810AU4) tailed 2.1bp: 4.405% high yield vs. 4.384% WI; 2.30x bid-to-cover vs. 2.49x in the prior month.
  • Focus turns to Friday's June PPI and UofM Sentiment and the start of the latest equity earnings cycle: Wells Fargo, Bank of NY Mellon, JP Morgan and Citigroup headlining.
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