The Consumer Price Index shows a decrease in inflation

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Published Date 5/15/2024

Traders and markets waited two weeks for current inflation data, yesterday April PPI data revealed inflation at the wholesale level increased, but PPI isn’t where markets look and traders don’t give it much concern on inflation as consumer prices do.

At 8:30 am ET April consumer price index confirmed what was expected, inflation declined from March. The release was right on forecasts, itself unusual. Inflation declined 0.1% from March in every measurement. Month to month expected +0.3%, year/year expected +3.4% reported at 3.4%. It was the same with the core data, month/month +0.3%, year/year +3.6%, both as estimated. The initial reaction took the 10 year note down to 4.35% -9 bps and MBS prices jumped 38 bps.

Inflation declined from 3.8% year/year to 3.6%, a nice decline but still inflation is well above what the Fed is looking for. The Fed’s key inflation read doesn’t hit until May 31st when the PCE inflation is released.

Also supportive for rates, April retail sales were softer than forecasts and adding to our view the consumer is increasingly less optimistic about their circumstances. Month/month sales expected +0.4% was 0.0% from March and March revised from +0.7% to +0.6%. Excluding vehicles +0.2% as forecast although down from revised March +0.9% from +1.1% originally reported, Ex vehicles and gas expected +0.1% reported -0.1%. Every measurement of consumers reported recently have shown consumers are becoming less optimistic, consumer credit card debt slowed in the recent data, both consumer measurements much weaker than in the prior month.

At 9:30 am the DJIA opened +164, NASDAQ +92, S&P +25. 10 year note at 9:30 am 4.38% -6 bps, FNMA 6.0 30 year coupon at 9:30 am +38 bps from yesterday’s close and +41 bps from 9:30 am yesterday, the 6.5 coupon +10 bps from yesterday and +11 bp from 9:30 am yesterday.

At 10 am May NAHB housing market index expected unchanged from April at 51.0 was disappointing, the index declined to 45, the lowest level in four months. The gauge for current sales conditions fell six points to 51, the component measuring sales expectations in the next six months fell nine points to 51 and the gauge charting traffic of prospective buyers declined four points to 30.

Early this morning weekly MBA mortgage applications improved from the prior week, +0.5% on the composite, purchase apps though declined 1.7% after increasing 1.8% the prior week, re-finance apps +4.7% from 4.5% the prior week.

Most of the comments after CPI from media reporting two rate cuts this year. Month over month consumer prices the lowest in six months encouraging the cuts. Core inflation based on today’s CPI still at 3.6%, much higher than what the Fed is looking for.

Source: TBWS

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