April 11. The Good, the Bad and the (inflation) Ugly
–Good: China taking steps to ease trade pressures. Bad: US may bomb Syria and escalate broader conflict. Good: Zuckerberg got through Senate testimony. Bad: Trump considering firing Mueller, Rosenstein, or both.
–Yields edged slightly higher yesterday as stocks soared. Front end of the curve was weakest on the board with whites -2.125 and reds -2.25. 5/30 made a marginal new low for the cycle at 39.4. Like most curve measures, it’s the lowest since 2007. In the 2004/2006 tightening episode the curve never really based until late in the cycle, when things were already starting to turn bad.
–While some economic data has recently softened, PPI yesterday was strong. Yoy Core was +2.7% highest since 2011.
Since the start of 2016, this measure has accelerated from +0.2 to +2.7%. Today brings CPI. Core CPI, shown in white on the chart below, accelerated from 2015 to 2016. Recently it has been muted, however, due to base effects, Core CPI expected 2.0 to 2.1 from 1.8 last. Monthly figures expected 0.0 and 0.2 for Core. Several markets also highlighted inflationary impulses yesterday. Crude oil was up over $2/bbl and is poised to break out to new highs. CRB and BCOM commodity indexes had strong rallies. The dollar index weakened. All in support of the Fed’s tightening mission.
–Again, note that April/June ED spread is negative at -1.25 (April expires Monday). EDZ0/EDH1 also closed below zero again, at -0.5.
–FOMC minutes released this afternoon.
