The Treasury curve is 3 bps steeper this morning despite another downside miss on CPI in July.  The major Asian and European equity indexes were lower overnight, but S&P 500 futures have rebounded post-CPI and are now up 5 points amid a weaker U.S. dollar.  Both headline and core CPI rose 0.1% m/m in July versus expectation of a 0.2% increase (for both).  This is the fifth consecutive below-expectations print for core CPI, which is the second longest streak of the last 20 years (6mo streak in 2005).  On a year-over-year basis, both measures rose 1.7% (headline up from June and core unchanged).  Much of the weakness is attributable to continued weakness in auto pricing (-0.4% in July) and the lodging away from home category, the latter of which posted the largest monthly decline since the 1960s.

This, of course, further fuels the ongoing debate of whether or not the recent inflation weakness is due to transitory factors.  Yesterday, Fed Vice Chair Bill Dudley reiterated his expectation (and the official position of the FOMC) that inflation will rise to the 2% target over the medium term. At the same time, he acknowledged that sluggish productivity is limiting wage growth, despite strong job gains and reduced labor market slack.  Today’s inflation report shouldn’t have any impact on the balance-sheet reduction plan, but it does dampen market expectations for future rate hikes, particularly for the rest of 2017.

Jason Haley
Managing Director, Investment Management Group


08/07/201715:00Consumer CreditJun$15.750b$12.397b$18.410b$18.285b
08/08/201706:00NFIB Small Business OptimismJul103.5105.2103.6
08/08/201710:00JOLTS Job OpeningsJun5750616356665702
08/09/201707:00MBA Mortgage Applications04-Aug3.00%-2.80%
08/09/201708:30Nonfarm Productivity2Q P0.70%0.90%0.00%0.10%
08/09/201708:30Unit Labor Costs2Q P1.10%0.60%2.20%5.40%
08/09/201710:00Wholesale Inventories MoMJun F0.60%0.70%0.60%
08/09/201710:00Wholesale Trade Sales MoMJun0.00%0.70%-0.50%-0.10%
08/10/201708:30Initial Jobless Claims05-Aug240k244k240k241k
08/10/201708:30Continuing Claims29-Jul1960k1951k1968k1967k
08/10/201708:30PPI Final Demand MoMJul0.10%-0.10%0.10%
08/10/201708:30PPI Ex Food and Energy MoMJul0.20%-0.10%0.10%
08/10/201708:30PPI Ex Food, Energy, Trade MoMJul0.20%0.00%0.20%
08/10/201708:30PPI Final Demand YoYJul2.20%1.90%2.00%
08/10/201708:30PPI Ex Food and Energy YoYJul2.10%1.80%1.90%
08/10/201708:30PPI Ex Food, Energy, Trade YoYJul1.90%2.00%
08/10/201709:45Bloomberg Consumer Comfort06-Aug51.449.6
08/10/201714:00Monthly Budget StatementJul-$54.0b-$42.9b-$90.2b
08/11/201708:30CPI MoMJul0.20%0.10%0.00%
08/11/201708:30CPI Ex Food and Energy MoMJul0.20%0.10%0.10%
08/11/201708:30CPI YoYJul1.80%1.70%1.60%
08/11/201708:30CPI Ex Food and Energy YoYJul1.70%1.70%1.70%
08/11/201708:30CPI Core Index SAJul251.995251.914251.627
08/11/201708:30CPI Index NSAJul244.925244.786244.955
08/11/201708:30Real Avg Weekly Earnings YoYJul1.10%1.10%1.20%
08/11/201708:30Real Avg Hourly Earning YoYJul0.70%0.80%0.90%