The Data We Have All Been Waiting For

Rates flatten in CPI sandwich. Swap rates and Treasury yields were mixed today ahead of tomorrow’s ever-important CPI print, where forecasts are calling for mixed output. Meanwhile, China had their big day yesterday, as their CPI came in above forecasts at -0.3% while PPI was weaker at -4.4%. The levels marked the first time that both fell simultaneously since 2020, illustrating further evidence of Chinese disinflation that has fueled broader global concerns. The 2-year UST yield rose 6bps to 4.81% while the 10-year yield dropped 1bp to 4.01%.

CPI Preview. Markets are eager to see how CPI trends from last month, where June’s headline (3.0%) and core (4.8%) YoY figures recorded their lowest levels seen since 2021. July’s YoY headline figure is expected to increase to 3.3% while the core YoY level is expected to decline to 4.7%. Meanwhile, the headline and core MoM figures are expected to stay flat at 0.2%, equivalent to an annualized rate of ~2.43%.

How will markets react? A lower-than-expected CPI print could cement calls for a reserved Fed, especially given the central bank’s stated search for sustained disinflationary pressures. On the other hand, the “higher-for-longer” narrative could gain significant momentum with an elevated CPI level, which would disprove evidence of continued progress. Thursday’s PPI, generally expected to increase from June, will also be under the microscope.