Markets will be focused on CPI and PPI this week

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Published Date 9/9/2024

Rates opened under pressure this morning, the 10 year note at 3.74% +3 bps ahead of CPI on Wednesday and PPI on Thursday. Treasury will auction $109B of 3s, 10s, and 30s on Tuesday, Wednesday, and Thursday.

The main thoughts in trader’s minds, how much will the Fed lower the FF rate next week, 25 or 50 bps? One view is the rate markets have front-ran a 50 bp cut at present levels, the other, the Fed is way behind in lowering rates. Numerous Fed officials, including Jerome Powell have made it clear cuts are coming. The Fed is way behind lowering rates as employment continues to show weakness. The July employment report was so weak rates plunged. The JOLTS job openings are declining, last Friday’s August employment also weaker than anticipated. NFP jobs were thought to be +160K, reported at 142K and July NFP jobs were revised from 114K to 89K. Private jobs estimates +136K reported at 118K and July jobs revised from 97K to 74K. The key manufacturing jobs tanked in August, expected -2K, declined 24K. The three-month average payrolls, the softest since May 2020.

Walking the line, the Fed mandates are two-fold, keep employment from falling hard and keep inflation from increasing. Inflation has been slowing and job losses are increasing. On Wednesday August CPI year/year core forecasts +3.2% unchanged from July. For all the Fed official’s comments that rate cuts are coming, but dancing between 25 and 50 keeping tension high and volatility up. The Fed should step up and cut 50 but traders expect the cut to be 25 while a few big banks think 50 is one the way. The Fed needs to go 50 to prove it believes inflation is softening and employment is weakening, but history for the Fed isn’t the best. Misjudged the inflation trajectory believing it would be short-lived due to the pandemic and now it appears misjudging the weakness in the employment sector.

Stock indexes were plastered last Friday, the DJIA -410, NASDAQ -437, S&P -95.

At 9:30 am the DJIA opened +245, NASDAQ +152, S&P +40. The 10 at 9:30 am 3.73% +2 bps; FNMA 5.5 30 year coupon -2 bps from Friday’s close and +5 bp from 9:30 am Friday. The 6.0 coupon at 9:30 am -3 bps and +8 bp from 9:30 am Friday.

At 3 pm July consumer credit expected +$12B, the focus though for us is the use of credit cards (revolving credit). Credit card delinquency rates are on the increase suggesting consumers are not as in good shape as Wall Street thinks.

This Week’s Economic Calendar:

Monday,

3 pm July consumer credit (+$12.0B from $8.9B)

Tuesday,

6 am August NFIB small business optimism index (93.6 from 93.7)

1 pm $58B 3 year note auction

Wednesday,

8:30 am August CPI (moth/month +0.2%, year/year +2.6% from 2.9% in July, ex food and energy month/month +0.2%, year/year +3.2% unchanged from July)

1 PM $39B 10 year note auction

Thursday,

8:30 am weekly jobless claims (230K from 227K)

August PPI (month/month +0.2% from +0.1%, year/year +1.8% from +$2.2%; month/month ex food and energy +0.2% from 0.0%)

1 pm $22B 30 year bond auction

2 pm August Treasury statement

Friday,

8:30 am August import and export prices (month/month imports +0.2% from +0.1%, year/year +0.9% from +1.6%; month/month export prices -0.1% from +0.7%)

10 am mid-month University of Michigan consumer sentiment index (68.0 from 67.9 in July)

Source: TBWS

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