Market Insights – August 13, 2018

August 13, 2018 Chatham Financial

Inflation In Line with Expectations

View this week's rates.

Prior Week Summary

Last week was another relatively uneventful summer week that saw very little in the way of interesting economic data points. The updates on the inflation landscape with the releases of CPI and PPI throughout the week were broadly in-line with consensus expectations. The Labor Department reported that consumer prices rose 0.2% in July, bringing the year-over-year increase to 2.9%. Economists had expected an increase of 0.2% and 2.9%, respectively. The core measure of the CPI, which excludes the more volatile components of food and energy rose an impressive 2.9%, which is the largest yearly gain in that metric in nearly a decade. A deeper look at the data suggests that most of the recent gain in core prices was attributable to gains in the cost of housing and a steep rise in the cost of used vehicles.

Gains in producer prices were also broadly in line with economist forecasts, with costs increasing 3.3% on a yearly basis in July relative to an expectation of a 3.4% gain. Excluding the impacts of food, energy and trade, prices increased 0.3% in July, matching the increase in the June survey period.

As of this writing, the market is still largely expecting a hike at the September meeting with roughly 94% odds priced in for a 25 basis point hike according to the CME’s Fedwatch tool.

The Look Forward

The data calendar this week features updates on retail sales, industrial production and consumer sentiment.

 

Rates Snapshot

Sources: Bloomberg Finance L.P., (Treasuries) Chatham Financial (Swap Curves), FHLB Boston, Chicago, Dallas, Des Moines for FHLB Advance Rates. Wells Fargo Brokered CD Indications.

 

Market Implied Policy Path (Overnight Indexed Swap Rates)

Source: Chatham Financial

 

Fixed Income Snapshot

Source: Bloomberg Finance L.P.

 

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Transactions in over-the-counter derivatives (or “swaps”) have significant risks, including, but not limited to, substantial risk of loss. You should consult your own business, legal, tax and accounting advisers with respect to proposed swap transaction and you should refrain from entering into any swap transaction unless you have fully understood the terms and risks of the transaction, including the extent of your potential risk of loss. This material has been prepared by a sales or trading employee or agent of Chatham Hedging Advisors and could be deemed a solicitation for entering into a derivatives transaction. This material is not a research report prepared by Chatham Hedging Advisors. If you are not an experienced user of the derivatives markets, capable of making independent trading decisions, then you should not rely solely on this communication in making trading decisions.

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