Weak UK Inflation Spurs Rates Rally

Markets rally on overseas data. Swap rates and Treasury yields declined today after weak UK inflation data provided evidence of wavering global price pressures. However, markets remain convinced that the Fed will hike rates 25bps at next week’s FOMC meeting, the current odds at 96%. Any hikes beyond July are seen as improbable, with a 12% probability currently priced in for a September hike. The 2-year yield stayed flat at 4.77% while the 10-year yield declined 4bps to 3.75%.

UK CPI Summary. UK CPI came in lower than expected across the board today, with the headline YoY level of 7.9% the lowest in 15 months. June’s miss was preceded by two straight marks of 8.7% in May and April, still well off the high of 11.1% in October 2022. While a drop in fuel prices was a major catalyst for the move, core YoY CPI, which excludes fuel prices, also missed its forecast at 6.9%. Meanwhile, the MoM level was 0.1% despite the forecast of 0.4%.

Day ahead. Philadelphia manufacturing and jobless claims figures will lead the session at 8:30 AM. Existing home sales data will follow shortly thereafter at 10 AM.