Pleasant PPI Paradox Leaves This Week’s Big Victory in Focus

The Producer Price Index (PPI) introduced a brief but disconcerting threat to this week’s relative level of triumph (courtesy of yesterday’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.  We 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 yesterday’s big CPI victory.  

Econ Data / Events

Core PPI M/M

0.4 vs 0.2 f’cast
last month revised to 0.3 from 0.0

Core Annual PPI

3.0 vs 2.5 f’cast, 2.3 prev

Consumer Sentiment

66.0 vs 68.5 f’cast, 68.2 prev

Consumer inflation expectations

1yr down 0.1
5yr down 0.1

Market Movement Recap

08:43 AM Slightly stronger overnight but giving back gains after PPI.  MBS unchanged.  10yr up 0.3bps at 4.216.

10:31 AM healing continues.  MBS up an eighth.  10yr down 1.6bps at 4.197

01:07 PM Flat and sideways at the same levels as the last update.

04:43 PM Bonds heading out at or near best levels with MBS up nearly 3/4ths and 10yr down 2.6bps at 4.187.