What Happened Last Week?
Bonds Bracing For CPI Impact
Stocks sold off quickly in the overnight session Friday in response to the announcement of 35% tariffs on Canada. Bonds view such news as a double-edged sword, but also drifted into weaker and weaker territory as the day progressed. Given that yields remained inside the week’s range, experts are more inclined to view this as an acceptable sideways drift ahead of the big ticket data event: Tuesday’s CPI report. It goes without saying that some of the market will have to be surprised by the outcome which either will or will not show that tariffs have begun impacting the data in a significant way. The further from forecast, the larger the surprise and the potential bond market reaction. In that light, Friday’s weakness could be viewed as a move to the sidelines ahead of the forthcoming revelations.
Source: Matthew Graham, Mortgage News Daily 7/11/2025)
What’s on the Agenda for This Week?
Three Things
The three areas that have the greatest ability to impact MBS backend pricing this week are: (1) Geopolitical, (2) Inflation Nation and (3) Retail Sales.
(1) Geopolitical: There are several storylines that are garnering the attention of long bond traders. Ukraine/Russia is once again front and center. Pressure on Powell to step down, and tariffs are also key. There were weekend announcements of 30% tariffs on Mexico and the EU.
(2) Inflation Nation: When will tariffs show up in inflation data? Last week’s Minutes certainly showed that the Fed has been scratching their collective heads over this. This week will be both CPI and PPI. The bond market will rally if they are lower than expected as the prospect of a Fed rate cut will increase. But the bond market will sell off if they are higher than expected.
(3) Retail Sales: It was not a good Consumer Credit report last week as it showed a big down turn in credit card charges. But will this translate into lower Retail Sales?
Market Wrap-up
There were no major (or minor) domestic economic releases today.
On Deck for Tomorrow: CPI, Core CPI, Empire Mfg Index.