Market Insights – May 14, 2018

May 14, 2018 Chatham Financial

Inflation Stays the Course

View this week's rates.

Prior Week Summary

The economic news of the week was all about the inflation landscape, with updates to both consumer and producer prices. The Labor Department reported on Wednesday that wholesale prices rose 0.1% in April, as a decline in the cost of food weighed on the average. The decline in the cost of food was the largest such drop in a year, and reflected weakness in the prices for beef, eggs and vegetables. When controlling for the changes in food and energy prices, producer prices rose 2.3% from this point last year.

On the consumer side of the ledger, the Labor Department reported that consumer prices rose 0.2% in April, after falling 0.1% in March. Excluding the more volatile changes to food and energy costs, prices rose 0.1%, bringing the year-over-year change in consumer prices to 2.1%. The report detailed that prices for used cars fell by the most in nearly ten years, while the cost of airfare fell by the most in four years. When taken together, the gain in consumer and producer inflation in April suggest that price changes are well within the Fed’s outlook, and unlikely to materially change the current path of monetary policy.

As of this writing, the market is pricing in nearly 100% odds of a hike next month at the June FOMC meeting.

The Look Forward

The market will be looking forward to updated information on retail sales, industrial production and the housing market. There is also a very busy calendar of Fed speaking engagements this week, which the market will pay very close attention to for clues on the updated views of voting members of the FOMC.

 

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.

 

Chatham Hedging Advisors, LLC (CHA) is a subsidiary of Chatham Financial Corp. and provides hedge advisory, accounting and execution services related to swap transactions in the United States. CHA is registered with the Commodity Futures Trading Commission (CFTC) as a commodity trading advisor and is a member of the National Futures Association (NFA); however, neither the CFTC nor the NFA have passed upon the merits of participating in any advisory services offered by CHA. For further information, please visit http://www.chathamfinancial.com/legal-notices/.
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.

18-0111

Previous Article
Market Insights – May 21, 2018
Market Insights – May 21, 2018

The news of the week kicked off with the Commerce Department reporting a 0.3% increase in retail sales in A...

Next Article
Market Insights – May 7, 2018
Market Insights – May 7, 2018

Interest rates were remarkably stable for a week with so many potential catalysts for yield volatility.

×

Subscribe to Chatham's weekly Market Insights

First Name
Last Name
Company
!
Thank you!
Error - something went wrong!