Treasury prices are slightly lower despite September CPI coming in below expectations. There’s definitely more jitters in the broad markets in recent days. U.S. equities plunged more than 3% yesterday, and despite multi-year highs in long-end yields, trading flows in Treasuries have been relatively poor. Higher currency hedging costs are negatively impacting foreign demand at a time when supply is growing (budget deficit funding). The lack of a stronger bid for Treasuries at current yields only adds to the general anxiety in equity markets. Not surprisingly, Asian equity markets were much lower overnight in a follow through to yesterday’s U.S. session (Nikkei -3.9%, Shanghai -5.2%), and European markets are down approximately 1%. S&P 500 futures were down 20-23 points overnight but have rebounded and are currently flat on the day. Adding to the general anxiety in markets overnight was President Trump telling Fox News that “the Fed is going loco,” and that the central bank was more to blame for the weakness in equities than current trade tensions with China.

Both headline and core CPI were up 0.1% m/m in September versus expectations of 0.2% gains for each metric. Core CPI was unchanged at 2.2% on a year-over-year basis, just below expectations of 2.3% growth. This report provides a little relief for the markets. There was some concern ahead of the report that a higher reading may spark a stronger sell-off in long-end rates, potentially sending the 10-year Treasury yield on a course toward 2.35% given the lack of demand in recent days.

Jason Haley
Managing Director, Investment Management Group

10/09NFIB Small Business Optimism108.3107.9108.8
10/10MBA Mortgage Applications-1.70%0.00%
10/10PPI Final Demand MoM0.20%0.20%-0.10%
10/10PPI Ex Food and Energy MoM0.20%0.20%-0.10%
10/10PPI Ex Food, Energy, Trade MoM0.20%0.40%0.10%
10/10PPI Final Demand YoY2.70%2.60%2.80%
10/10PPI Ex Food and Energy YoY2.50%2.50%2.30%
10/10PPI Ex Food, Energy, Trade YoY2.90%2.90%
10/10Wholesale Inventories MoM0.80%1.00%0.80%
10/10Wholesale Trade Sales MoM0.50%0.80%0.00%
10/11CPI MoM0.20%0.10%0.20%
10/11CPI Ex Food and Energy MoM0.20%0.10%0.10%
10/11CPI YoY2.40%2.30%2.70%
10/11CPI Ex Food and Energy YoY2.30%2.20%2.20%
10/11CPI Index NSA252.697252.439252.146
10/11CPI Core Index SA258.629258.441258.141
10/11Real Avg Weekly Earnings YoY1.10%0.50%
10/11Real Avg Hourly Earning YoY0.50%0.20%
10/11Initial Jobless Claims207k214k207k
10/11Continuing Claims1660k1660k1650k
10/11Bloomberg Consumer Comfort61.6
10/11Bloomberg Oct. United States Economic Survey
10/11Monthly Budget Statement$75.0b$7.9b
10/12Import Price Index MoM0.20%-0.60%
10/12Import Price Index ex Petroleum MoM-0.10%-0.20%
10/12Import Price Index YoY3.10%3.70%
10/12Export Price Index MoM0.20%-0.10%
10/12Export Price Index YoY2.90%3.60%
10/12U. of Mich. Sentiment100.5100.1
10/12U. of Mich. Current Conditions115.2
10/12U. of Mich. Expectations90.5
10/12U. of Mich. 1 Yr Inflation2.70%
10/12U. of Mich. 5-10 Yr Inflation2.50%