Markets:

  • Gold down $1.60 to $1913
  • WTI crude oil down $1.66 to $82.73
  • US 10-year yields up 9.5 bps to
  • S&P 500 up 1 point to 4469
  • EUR leads, JPY lags

It was a tough one to make sense of.

The US CPI report was lower than anticipated and the kneejerk was exactly what you would expect: USD weakness. However that lasted mere seconds as it quickly reversed and the dollar marched higher.

Similarly, US equities open very strongly on the data only to steadily back up before finishing close to flat.

There wasn't something hiding in the data, the unrounded numbers were below 0.2% at 0.16% on core and 0.17% on the headline and the gain was 90% driving by shelter, which lags and is set to fall. Excluding shelter, there's no inflation at all right now.

What might have been the tell was that bonds didn't bite on the data. Yield were slightly lower beforehand and didn't move down much on the numbers. Fed probabilities for Sept ticked to 9% from 13% but no one is revising their forecast. Instead, the bond market seemed to wrestle with supply and that was well founded as a 30-year long bond sale tailed by 1.4 bps despite a concession in the hours leading up to it.

The auction miss certainly reverberated as yield then steadily marched higher and USD/JPY was pulled higher with it, coming to within 20 pips of 145.00. That also helped a broad dollar bid that was compounded as the rising yields hit equities and commodities.

Some have begun to talk about an inflation bounce in October as comps roll off and higher oil prices are certainly playing into that but it all sounds stretched. Perhaps it's just an August market and when you zoom out, the only meaningful change in the market today was yen weakness, which is certainly justified by differentials.

Another line of thinking is simply optimism about a no landing scenario. That, combined with deficits, may be adding to term premium and causing something of a steepener with bond buyers reluctant to hold duration.

On Friday we get PPI and UMich sentiment, which might be tradeable but are hardly meaningful.

FX moves