What Happened Last Week?
Pleasant PPI Paradox Leaves the Week’s Big Victory in Focus
The Producer Price Index (PPI) introduced a brief but disconcerting threat to the week’s relative level of triumph (courtesy of Thursday’s CPI) by suggesting a big, unexpected surge in core inflation at the wholesale level. Bonds initially panicked, but quickly got back on track and never looked back. Thankfully, the components behind the PPI surge are not the same components that would translate to PCE inflation in 2 weeks. One can also consider PPI’s notorious volatility and conclude it would take more than one of these surprises to raise a serious eyebrow. With that, the focus of the week remained squarely on Thursday’s big CPI victory.
Source: Matthew Graham, Mortgage News Daily 7/12/2024)
What’s on the Agenda for This Week?
Three Things
The three areas that can have the greatest impact on MBS backend pricing this week are: (1) Retail Sales, (2) Treasury Dump and (3) Geopolitical.
(1) Retail Sales: The biggest economic release of the week is Tuesday’s Retail Sales report. The headline number is expected to be flat at 0.0%. The higher this number is… the worse it will be for pricing and vice versa.
(2) Treasury Dump: There is an important 20-year Treasury bond auction on Wednesday.
(3) Geopolitical: As the markets react to the assassination attempt on former President Trump, they will focus on this week’s RNC convention and VP pick as well as policy. They will also focus on President Biden.
Market Wrap-up
Domestic Flavor
Rosie the Riveter: The July Empire Manufacturing Index continues to decline, contracting at a rate of -6.6% versus estimates of -6.0%.
The Talking Fed: Fed Chair Powell spoke at The Economic Club and during the interview he stressed the Fed’s independence and that due to “long and variable lags” in data, the Fed does not have to wait until Inflation is exactly at 2% but rather have confidence that inflation is on a path to returning to 2% before cutting. This was not new nor provocative though, we have heard this from Powell before.
On Deck for Tomorrow: Retail Sales, Import and Export Prices, NAHB Index.
Across the Pond
China: 2nd quarter GDP was weaker than expected, 0.7% versus estimates of 1.5%.