Producer prices increased more than expected in June

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Published Date 7/12/2024

Yesterday’s CPI data added to the thought the Fed will cut rates at the September FOMC meeting. Inflation declined in June more than estimates which were already pointing to a decline. Rates dropped, the 10 year down 8 bps to close at 4.21%, the 2 year declined 12 bps to 4.52%. MBS prices ended the day +23 bps but was lower than +33 at 9:30 am ET.

This morning June PPI expected to show increases at the wholesale level, the report was higher than forecasts. The initial reaction didn’t generate selling in the bond markets. At 9 am the 10 year at 4.21% unchanged from yesterday, the more sensitive 2 year note -3 bps from yesterday. FNMA 6.0 30 year coupon at 9 am +6 bps from yesterday’s 23 bp increase. The core+ was better, month/month ex food and energy and trade services 0.0% against estimates at +0.2%, year/year declined to +3.1% from +3.3% in May.

Jamie Dimon (JP Morgan Chase) reminding that rates won’t decline much from present levels, headwinds for rates are not just inflation levels. “There has been some progress bringing inflation down, but there are still multiple inflationary forces in front of us: large fiscal deficits, infrastructure needs, restructuring of trade and remilitarization of the world,”… “Therefore, inflation and interest rates may stay higher than the market expects.” His remarks echo the reality of rate levels, particularly at the long end of the curve, the US is deep in debt that has to be funded and that will keep interest rates higher than otherwise if we aren’t living in deficit spending.

Today kicks off earnings season that goes on forever it seems like.

At 9:30 am the DJIA opened +85, NASDAQ +33, S&P +9. 10 year at 9:30 am 4.21% unchanged. FNMA 6.0 30 year coupon at 9:30 am +7 bps from yesterday’s close and -3 bps from 9:30 am yesterday. FNMA 6.5 30 year coupon +9 bps from yesterday’s close and -3 bp from 9:30 am yesterday.

At 10 am the University of Michigan consumer sentiment index expected at 68.5 from 68.2 in June. The index dropped to 66.0, all components weaker than two weeks ago.

The key now is the 10 year note breaking below 4.20%, the lowest level going back to mid-March.

Source: TBWS

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J.C. Mier The Mortgage GOAT

Branch Manager/ Loan Officer

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