CHM Blog

The last few days markets were anxiously waiting for the next inflation release, this morning’s July consumer price index. The data dropped at 8:30 am ET, the initial reaction dropped the 10 year note yield 2 bps, the 2 year note fell 6 bps, MBS prices increased 8 bps.

The July CPI generally in line with forecasts. CPI overall month/month expected at +0.2% reported at 0.2% and down from June’s +0.3%, year/year thought to be +2.8% reported at 2.7%. Core month/month in line with estimates at +0.3% but up from +0.2% in June, year/year core month/month +0.3% as expected but increased from 0.2% in June, year/year core forecasts were +3.0% increased to 3.1% and up from 2.9% in June. The annual core consumer price inflation rate, which excludes volatile items like food and energy, rose to 3.1% in July, the steepest in five months. The shelter index increased 3.7% over the last year, following a 3.8% rise previously. Other indexes with notable increases over the last year include medical care (+3.5%), household furnishings and operations (+3.4%), motor vehicle insurance (+5.3%), and recreation (+2.4%).

Although overall CPI bumped up slightly the increase was still less than feared by many. The data will not dissuade the Fed lowering their key rate at the September FOMC meeting. A 0.2% increase in shelter costs drove much of the rise in the index, while food prices were flat and energy fell 1.1%, the BLS said. Tariff-sensitive new vehicle prices also were unchanged though used cars and trucks saw a 0.5% jump. Transportation and medical care services both posted 0.8% moves higher month/month.

After months of hand-wringing that the tariffs would explode inflation, recently traders have come to accept price increases caused by increased tariffs may be a one-off condition with price increases adjusting to new tariffs and won’t escalate much once prices make that adjustment.

While the report can be considered in line with overall estimates, inflation did inch higher.

Early this morning the National Federation of Independent Business (NFIB) reported its optimism index thought to be at 98.9 from 98.6 in June jumped to 100.3, the highest reading this year.

At 9:30 am the initial reaction to CPI that dropped the 10 year note to 4.25% (-5 bp) had evaporated and traded back to 4.29% unchanged from yesterday.

At 9:30 am the DJIA opened +209, NASDAQ +116, S&P +29. The 10 at 9:30 am 4.30% +1 bp from yesterday’s close. FNMA 6.0 30 year coupon at 9:30 am +1 bp from yesterday’s close and -9 bps from 9:30 am yesterday.

There isn’t anything left today for economic consumption. Additional movement, if any, will be driven by news reports.

PRICES @ 10:00 AM

10 year note: 4.31% +2 bp

5 year note: 3.85% unch

2 year note: 3.76% -2 bp

30 year bond: 4.90% +4 bp

30 year FNMA 6.0: @9:30 am 101.74 +1 bp (-9 bp from 9:30 am yesterday)

30 year FNMA 6.5: @9:30 am 103.43 +6 bp (+5 bp from 9:30 am yesterday)

30 year GNMA 6.0: @9:30 am 101.83 +11 bp (+5 bp from 9:30 am yesterday)

Dollar/Yen: 148.02 -0.13 yen

Dollar/Euro: $1.1659 +$0.0042

Dollar Index: 98.45 -0.07

Gold: $3,394.40 -$10.30

Bitcoin: 118,749 -325

Crude Oil: $63.38 -$0.58

DJIA: 44,190 +215

NASDAQ: 21,437 +52

S&P 500: 6393 +19

Richard Sardella has been actively managing and providing services in the mortgage industry for over 30 years. Richard serves on the board of directors as President of Colorado Home Mortgages Inc.

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