Market Insights – September 17, 2018

September 17, 2018 Chatham Financial

Inflation Underwhelms

View this week's rates.

Prior Week Summary

The market began the week looking forward to updates on the inflation landscape for potential confirmation of the strength in recent reports. On that front, investors were largely disappointed, with both CPI and PPI inflation underwhelming consensus expectations. Along those lines, the Labor Department reported last week that producer prices unexpectedly fell in August on declining costs for food and business services. The month-over-month decline in PPI was the first in about 18 months and reduced the year-over-year increase in prices to 2.8%. A separate report from the Labor Department detailed that consumer prices also slowed in August, led by a decline in apparel costs which reportedly fell by the most in several decades. Excluding food and energy costs, the core index of consumer prices rose 2.2% in August from a year earlier, relative to expectations for a 2.4% gain.

Despite the lackluster inflation prints, the market is still largely expecting a 25 basis point hike next week, with a second hike priced in at the December meeting with nearly 75% implied probability.

The Look Forward

The data calendar is full this week with updates expected on the state of the housing market, the manufacturing sector, as well as the current account.

 

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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