Markets Await Key US Inflation Figures

Swap rates rise overnight but close nearly flat. Rates hit their session highs before 8AM this morning, up 4-6bps across the curve and reversing much of Friday’s risk-off move. However, rates grinded lower throughout the remainder of the session, with the short end of the curve closing ~2bps higher while the long end fell 1-2bps. Markets are looking ahead to Wednesday’s CPI print, where core figures are expected to remain flat at 3.2% year-over-year and 0.2% month-over-month. Meanwhile, equities bounced back after a weak start to September, with the NASDAQ and S&P 500 both rallying 1.16%.

Consumer debt tops forecasts in July. Per Fed data released today, US consumer borrowing climbed by over $25bn in July. The jump was the largest since November 2022. Revolving debt (including credit cards) rose $10.6bn, the most in 5-months, while non-revolving debt rose $14.8bn. The elevated debt balances drove strong consumer spending in July, though delinquency and debt burden are top of mind. A Fed report released in July showed that the share of credit card debt that was newly delinquent rose to 9.05%, the most in ~12 Years, while the share of auto loans at least 30 days delinquent was the most since 2010.

China deflationary signals continue. China’s consumer price index (CPI) showed 0.6% price growth in August versus 0.7% expected while the producer price index (PPI) fell by 1.8%, the biggest drop in four months. Core CPI rose just 0.3% year-over-year, the weakest level in over three years. The continued deflationary pressures have pushed long-term government bond yields to record lows while the CSI 300 Index is on the cusp of hitting a 5-year low. Chief China economist at Morgan Stanley said that “experience from Japan suggests that the longer deflation drags on, the more stimulus China will eventually need to break the debt-deflation challenge.”