Markets will be focused on inflation this week

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Published Date 6/10/2024

This morning more selling in the bond market, the 10 year at 9 am ET 4.47% +3 bps, MBS price -17 bps. This week is loaded with key data on inflation with May CPI, and PPI, the FOMC meeting, Fed’s quarterly projections, Powell’s press conference, $110B of 3 year, 10 year and 30 year auctions, and consumer sentiment.

Both May CPI and PPI estimates are mixed, no inflation increases or declines. Technically, the 10 year note broke below its 200-day average but as in the past the 200-day average usually stopped any improvement. Fundamentally its about inflation and what the Fed may or may not do in the months ahead; no cuts expected now until at least the fourth quarter. The Fed in a tightening bind, inflation isn’t moving up or down recently yet if we believe the accuracy of the BLS employment report on Friday the employment sector is still strong. The Fed would prefer to see employment moderate and some economic softening that it believes will lower inflation before cutting rates.

Last week the ECB cut its base rate by 0.25% even as inflation is still above 2.0%, saying it expects inflation to continue to slow more. In the statement the ECB pointed out further cuts should not be expected unless led by declining inflation. So far, the Fed has ben making clear there won’t be any easing until the path of declining inflation is clear and not questionable. If the economy doesn’t roll over and we get those unrealistic job gains we saw Friday interest rates won’t sustain lower rates.

At 9:30 am the DJIA opened -43, NASDAQ -47, S&P -9. 10 year at 9:30 am 4.46% +2 bps. FNMA 6.0 30 year coupon at 9:30 am -8 bps from Friday’s close and -11 bps from 9:30 am Friday.

Some data reported by Barrons this morning. Total inventory of homes for sale at its highest level since late 2022, a Realtor.com analysis of National Association of Realtors and Census Bureau data through April show. The share of sellers who cut asking prices was at its highest level since November 2022 in the four weeks ended June 2nd, according to Redfin. The typical home now sits on the market for 46 days, up 2.3% from the year prior. Zillow estimates home values sinking 0.9% below 2024 levels next spring. Moody’s Analytics foresees price growth slowing to 1.5% by the end of the year before stagnating in 2025. “Over time, as the market normalizes, it might [impact home prices] a little bit,” says Moody’s Zandi, chief economist of Moody’s Analytics. "But we’re talking on the margin.”

This Week’s Economic Calendar:

Monday,

1 pm $58B 3 year note auction

Tuesday,

6 am May NFIB small business optimism index (89.7 unch from April)

1 pm $30B 10 year note auction

Wednesday,

7 am Weekly MBA mortgage applications

8:30 am May CPI (month/month +0.1% from +0.3%, year/year +3.4% unch from April; ex food and energy month/month 0.3% unch from April, year/year +3.5% from 3.6%)

2 pm FOMC policy statement

May Treasury budget (-$220B)

2:30 pm Powell’s press conference

Thursday,

8:30 pm weekly jobless claims (225K)

May PPI (month/month +0.1% from +0.5%, year/year +2.4% from 2.2%); ex food and energy (month/month +0.3% from +0.5%, year/year +2.3% from 2.4%)

1 pm $22B 30 year bond auction

Friday,

8:30 am May import and export prices (month/month imports +0.1% from +0.9%, month/month year/year +1.5% from +1.1%, year/year 0.0% from +0.5%)

10 am University of Michigan mid-month consumer sentiment index (73.0 from 69.1%)

Source: TBWS

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