MBS are + 9 bps. Stocks up 6.
China’s latest economic support measures buoyed stocks and commodities on Tuesday, though the mood was tempered by policy makers’ warnings of higher-for-longer interest rates. While central bank officials in Europe and the US are increasingly suggesting they’ve reached a turning point in the battle against inflation, they’re also warning that higher rates for longer are needed to ensure price stability.
That’s a mixed blessing for stock bulls who have had to endure a disappointing start to the second half after stellar gains in the first six months of the year. The approaching second-quarter earnings season will give them more to think about. Germany reported that inflation rose to 6.4% in June, which highlights the fact that Europe still has a big inflation problem. Overall Euro inflation is 5.5%, while the UK has a big problem with inflation at 8.7%.
Small Business Optimism increased in June, according to the NFIB Small Business Optimism Survey. The outlook has improved, however this is still the 18th month below the historical average. Importantly, the number of small businesses raising prices fell to the lowest level since March 2021.
Tomorrow brings the CPI inflation data at 8:30am ET, with the 10yr Treasury auction and Fed Beige Book in the afternoon. There is a good chance tomorrow could see rates improve slightly, however I’m still in a firm locking stance. I just struggle to anticipate the improvement will be worth the risk that if we see the data go sideways it sends rates soaring before AM rate sheets come out.
The stock market advanced before a report that’s expected to show a slowdown in inflation, which will help
shape the outlook for the Federal Reserve’s next steps. In the run-up to the consumer price index, the S&P 500
traded above its 4,400 mark. Energy producers led gains as West Texas Intermediate oil topped its key 100-day moving average.
A survey conducted by 22V Research shows that 65% of respondents believe the core CPI — which excludes volatile food and energy prices — will be lower than consensus. In addition, 54% of the investors polled expect the report to be “risk-on.”
Let’s not build up the upcoming CPI data too much. It’s important and it is highly likely to result in a level of bond market movement commensurate with its distance from forecasts. What we CAN know with relative certainty is that the bigger the “beat” the larger the jump in rates should be. The bigger the “miss,” the bigger the drop in rates.
At end of day, MBS were up 22 bps at 98.86. Stocks picked up about 30 points. Win-Win