while WE slept: USTs are lower by a handful of ticks (TSMC); #Got30s? (rent2own?); Core PCE to firm (Barclays, BMO); eco outlook leans to downside (MS)
Good morning … Equity futures little changed and bond yields higher …
The wait for HIMCOs latest quarterly continues. Summertime trading at your own risk once again. Kindly note “Adult Swim” signs hanging by the entrance / exits. I’ll offer a brief couple / few thoughts to help fill the void and hopefully not waste your time.
First up a look at long bonds in context and in the wake of a clean break …
30yy DAILY: 5.15%, 5.00%, 4.90% and 4.82% where …
… TLINE has been broken, cleanly, we KNOW this and momentum (stochastics, bottom panel) suggests momentum now overSOLD — rent-2-own (?) I’d note the circles — green one is overSOLD momentum and the blue circle is where / how the “X” marks the spot of MY interpretation of a clean break … and perhaps a target if / when bond yields were to start trolling back down the hill …
#Got30s?
Now in as far as tech-A-mentals go, well was there a TLINE sticksave yesterday, or WHAT!?!! OR, if you preferred … a clean break (which was also mentioned HERE by this rookie). Why, though …
Was it the data …
ZH: 'Cool' US Producer Prices Blow Up Tariff-Flation Narrative
… So much for the terrifying threat of tariff-flation... or will we just have to wait for next month to see the full horror.. or the next month?
… Seems to ME Mr. Markets weighed in (TLINE sticksave above) and rates complex caught a bid) and so … ‘bout that there ‘clean break’
… Back TO the news as the Beige Book might very well have been anything but beige …
ZH: Beige Book Spells Trouble For Powell: Mentions Of "Inflation" Tumble To 4 Year Low, As Growth Concerns Mount
… And finally, confirming that contrary to conventional wisdom the economic picture has been largely unchanged since April, the latest Beige Book found that contrary to prevailing media narratives, mentions of inflation actually dropped again, sliding to a new four year low of just 5 from 10 the previous month (effectively before the Biden inflationary explosion period) while mentions of "slow" rose to the highest since last October, just after the Powell Fed cut rates by 50bps. Overall, a very awkward report for a Fed that no longer has any excuse not to cut.
All of which suggests that the US economy - while hardly on fire as it was during the hyperinflationary period of Biden's admin - continues to chug along and is hardly collapsing as so many Trump foes would like to see; and it certainly is not seeing prices explode higher.
… make of this (and the Trump v JPOW steel cage mage) whatever you will.
Summer time …
… these times of the market are notoriously quiet and thinly staffed which means they can / will be moved with very little effort.
These moves will be exaggerated and are more often NOISE rather than signal and so, without further delay as I attempt to avoid being the noise … here is a snapshot OF USTs as of 700a:
… for somewhat MORE of the news you might be able to use … a few more curated links for your dining and dancing pleasure …
NEWSQUAWK US Market Open: TSMC +4% pre-market after Q2 results; Tier 1 data, Fed speak and earnings ahead … Fixed benchmarks weighed on by the TSMC-driven risk tone, Gilts underperform after the UK’s job data which continued to show a weakening labour market but unlikely to change the BoE’s trajectory…USTs are lower by a handful of ticks. Gradually drifting overnight after being driven to a 110-21+ peak in the US afternoon, a high that occurred in a continuation of the post-PPI move and as USTs picked up after the Powell reporting and subsequent pushback by Trump. Thus far, down to a 110-13 base which takes them back to roughly where they were before the first Powell reports hit. Today's focus will be on US data (Retail Sales, Jobless Claims, Atlanta Fed will update its GDPNow tracker), and a number of Fed speakers.
… While almost no one thinks Donald Trump's verbal attacks on Federal Reserve Chair Jerome Powell are a positive development, they have electrified the debate about whether the U.S. president is right that interest rates are too high.
Presidential tirades aside, there is a strong case to be made that the fed funds rate should be lower than its current 4.25-4.50% target range. The labor market is beginning to show signs of cracking, 'hard' economic data is softening, and a tariff-led slowdown may be in the offing.
On the other hand, economic growth is clocking in at an annualized pace of around 2.5% and not expected to dip much below 2% next year, unemployment is still historically low, the stock market is at a record peak, and other financial assets like bitcoin have also never been higher. And, crucially, core inflation is still almost a percentage point above the Fed's 2% target, suggesting that we may be starting to see the inflationary impact of tariffs.
By those measures, policy may be too loose, not too tight.
Indeed, Jason Thomas, head of global research and investment strategy at Carlyle, reckons financial conditions are "unusually accommodative", and argues that had the Fed not said in December that policy was 'restrictive', there would be no need to explain why it hadn't cut rates six months later.
The president clearly does not agree. Trump is clamoring for borrowing costs to be slashed by 300 basis points. That would take the policy rate closer to 1%, a level usually associated with severe financial market stress, strong disinflationary pressures or a deep economic funk. Or all three.
Our translation of this week's June CPI and PPI estimates points to a 0.30% m/m (2.8% y/y) rise in core PCE prices and a 0.32% (2.5% y/y) rise in the headline. We boost our Q4/Q4 core PCE forecast by 0.1pp, to 3.3%, in light of June's firm estimate.
…In our view, the soft trajectory of monthly core inflation going into June is poised for further firming in the coming months. Although airfares and lodging prices remain on downward trajectories, we doubt that this can be a sustained source of disinflation in the coming months. Meanwhile, financial services prices have now firmed following the post-Liberation Day swoon. More importantly, we expect cost-push pressures from tariffs to intensify in the coming months, which should push core goods PCE higher.
We revise our Q4/Q4 core PCE estimate higher to 3.3% (+0.1pp) for 2025 and leave it unchanged at 2.2% for 2026. The primary driver behind the upward revision is June's core PCE translation, which came in a touch higher than what we had penciled in last week…
16 July 2025 Barclays: US Economics: June IP looks surprisingly resilient
Industrial production looked surprisingly resilient in June, accelerating to 0.3% m/m following flat readings in April and May. Though much of June's rebound reflected the boost to utilities from a return to more seasonable weather, the underlying trajectory remains subdued amid tariff disruptions.
Best in biz on PPI and inference TO Fed fav Core PCE — no bueno (and recap of how yesterday went) …
July 16, 2025 BMO: PPI Misses; +0.3% Core-PCE Assumption Prevails
Headline PPI was unchanged in June, underperforming all estimates in the BBG survey and the +0.2% MoM consensus. May's initial print of +0.1% MoM was revised up to +0.3% MoM. Ex-food/energy, PPI was also flat on a monthly basis, missing the +0.2% MoM consensus, but May was revised up to +0.4% MoM from +0.1% MoM. This marks the fifth consecutive month in which both headline PPI and core-PPI printed lower than the BBG consensus. The components that feed into the Fed’s preferred measure of inflation (healthcare, airfares, portfolio-management, etc.) were generally in line with expectations; reinforcing the +0.3% core-PCE assumption for June, although such a move would mark the third consecutive month of accelerating price gains and the fastest pace since February’s +0.476%…
… The prospects for Trump attempting to fire Powell were once again topical on Wednesday. A narrative that was driven by headlines that read, “Trump indicated he’ll fire Powell, lawmakers say.” Unsurprisingly, stocks sold off sharply on the news and the front-end of the Treasury market rallied – the operating assumption being that in the event that Trump was successful in removing Powell, any replacement would quickly resume cutting rates. There are many assumptions behind the notion that Trump is able to remove and replace the Fed Chair with such ease. We continue to struggle with Trump’s timing – an easier solution (and one that wouldn’t involve the courts) would be to announce the President’s choice to replace Powell and afford the nominee the opportunity to publicly outline the initial gameplan when taking the helm of the FOMC next year. The latter outcome seems to have a higher probability of coming to fruition than the former. Although, we’re not falling victim to assuming that behavior in Washington is either traditional or predictable – neither appears to hold true at the moment…
…When taken together, the combination of CPI and PPI offer something for both the bond bulls and bears. Overall, core inflation figures are benign – at least on the surface. This is consistent with the push toward lower Treasury yields even as there was clear evidence that the tariff impact is being felt by consumers. The core-goods ex-autos print fits well into the storyline for those more bearishly disposed, as it hints that there will be future pass-through this summer; especially following the new levies that come online on August 1.
With this backdrop, investors will be closely tracking Thursday’s Retail Sales figures for any evidence that consumers are rotating away from discretionary spending to compensate for higher cost necessities. The pace of consumption has already been under pressure as evidenced by the personal spending data thus far in 2025. In the event of weakness in June’s Retail Sales report, the progress toward lower Treasury yields will be extended, as not only would this raise the probability of a September cut, but it would also function as an offset to forward inflationary angst. After all, a material pullback in demand as one-off, tariff-linked price increases flow through to the real economy has downside ramifications for real growth…
ReSale TALES on tap … lets GO!!
Germany questioning the color of the smoke or if there’s even any smoke …
16 July 2025 DB: Is there a fire behind all the smoke?
Earlier today, various news outlets reported that President Trump was considering firing Fed Chair Powell (see here, here and here). Trump quickly denied these reports (see here). We provide a few thoughts on today's events.
…Looking ahead, if the President decides to fire Powell, we anticipate it could set up a legal battle. If Powell is removed, the typical process would require Senate approval for the new Fed chair. However, Section 10.5 of the Federal Reserve Act grants the President the “power to fill all vacancies that may happen on the Board of Governors of the Federal Reserve System during the recess of the Senate by granting commissions which shall expire with the next session of the Senate.” In other words, Trump could temporarily appoint a new Fed chair during a Senate recess without requiring Senate approval. The next recess in the Senate is set for August 4th through September 1st, and the next Congressional session begins at the start of 2026. During the recess period, the Senate could opt to hold pro forma sessions to prevent recess appointments.
Taking a step back, central bank independence is a critical pillar for the achievement of price stability. With inflation still above the Fed’s objective, and with higher inflation likely ahead from tariffs, the removal of Chair Powell, and the challenge to Fed independence, would pose considerable risks to price stability in the US.
Aggressively UNCH …
July 16, 2025 First Trust: The Producer Price Index (PPI) Was Unchanged in June
…Implications: Tariff concerns remain top of mind for both the Fed and the markets, but producer prices have been telling a different story. Following outsized increases in December and January, prices have been trending comfortably below the Fed’s 2% inflation target ever since, including flat to down readings in three of the past four months … While some may point to the rise in goods prices as a sign that tariffs are raising costs for producers – and goods would logically seem the area most exposed to higher import costs – it must be noted that good prices are up at a modest 1.5% annualized rate over the last three months, and at a slower 0.8% annualized rate over the last six months … Since January, consumer prices have risen at a 1.8% annualized rate, while producer prices are up at a 0.2% rate. We believe monetary tightness will keep inflation relatively subdued in the months ahead and that there is already room for some modest rate cuts.
… and now we KNOW what would happen SHOULD the unthinkable be thought and executed …
16 July 2025 ING Rates Spark: It's confirmed, long-end yields rise if Powell were to go
We saw an interesting experiment played out on Wednesday as the market seemed to genuinely believe that Fed Chair Powell was about to be removed. We continue to identify this as a low probability event, but we examine how markets behaved in reaction to it, as a mini-version guide on how it might behave if it really did happen. No surprises…
…One silver lining is tariff income on tax receipts, but the bigger picture sees the issuance pressure remaining elevated and an ongoing issue. Remember the US Treasury likely does $0.5tn of net issuance in the coming months, mostly in bills, but still, the long end knows its coming down the track at some point.
Before PPI and JPOW / Trump rumble in the jungle impacted markets yesterday, this outlook updated note crossed inbox …
July 16, 2025 MS: US outlook update: Still weighted to the downside
We mark-to-market our baseline view for the US economy this year and next, and update our alternate scenarios. We continue to expect slow growth and firm inflation, with backloaded Fed cuts in 2026. Fiscal is now more of an upside risk, but recent trade announcements raise downside probabilities.
Key takeaways
We maintain our baseline view for slow growth and firm inflation. We expect real GDP growth of 0.8% in 2025 (Q4/Q4) and 1.1% in 2026. Inflation peaks in 3Q25.
Elevated inflation and downward pressure on the unemployment rate from immigration keep the Fed on hold this year, with backloaded cuts starting in March.
In our updated alternate scenarios, we see higher risk (40%) of a downside scenario on the back of recent escalations in trade announcements.
Upside risks could come from larger fiscal multipliers or de-escalation in trade and immigration restrictions. In both cases, 2026 growth is boosted more.
… time to get to work, Jay … cut them rates (um, in a backloaded fashion), bearishly steepen that curve and lets see how them there cookies crumble?
Surprise, surprise, surprise (I’ll spare you the video clip …)
US President Trump has recently shown an eagerness to change the media narrative. The narrative changed yesterday with speculation about the future of Federal Reserve Chair Powell. That shift might be expensive. Trump declared they had been “surprised” by Powell’s appointment. Trump originally appointed Powell.
The incident may make investors question the strength of rule of law in the US, which matters to reserve currency status. The incident has raised concerns about who Trump might nominate to replace Powell. An obvious political stooge would probably be ignored by markets and the Fed itself. A modern-day equivalent of Fed Chair Burns would be more troubling—superficially independent, but acting as the president’s spokesperson within the Fed.
US June retail sales should not show much tariff impact. While real incomes are starting to be challenged by trade taxes, the initial response of consumers is to maintain living standards by using credit and savings.
US June import and export prices matter. Import prices are pre-trade tax. If they deviate from previous trends (and those trends might be deflation), that suggests exporters are adjusting to take some of the cost of the taxes. If they follow established trends, the burden of trade taxes falls entirely on the US part of the supply chain.
Same shop with a note on Fedspeak and Beige Book …
16 July 2025 UBS: US Economic Perspectives Fedspeak and a Beige Book
Recent FOMC participant remarks point to rates on hold for now Following this week's inflation data and heading into the quiet period ahead of the July meeting, participants generally continued to signal a "wait and see" mode for policy. This is consistent with the messaging from Chair Powell of late. We expect Chair Powell keeps his options open and leans on data dependence, but does not rule out a September rate cut, and says something more like that the FOMC is likely to lower rates at a coming meeting, but that depends on the data and implications for the economic outlook.
Speaking after the CPI report, FRB of Richmond President Barkin noted that the most recent data showed some growing price pressures, but that uncertainty remains over the extent of inflation pass-through from tariffs depending on who in the supply chain bears the cost.
Governor and former Vice Chair for Supervision Barr used the phrase "wait and see" at a Brookings Institution event on Wednesday, also citing uncertainty from business and household contacts and risks to the inflation, with the June CPI data in hand. "If you look over the last few years, inflation went from a very highly elevated place to a somewhat elevated place. We've made substantial progress on inflation. That is starting to to trend the other way," he said. He added, "We can watch and see as tariffs come in. We're beginning to see some imprint on inflation prints. If you look over the last couple of months services inflation continues to moderate. But goods inflation, which had been basically zero or negative, is now positive. And this month, very positive — positive meaning high," he said, citing durables price data. He termed the labor market "solid," but said "there are some cracks," and said that the Committee must "make sure we're attentive to making sure that that unemployment doesn't rise excessively."
Also following the June CPI release, FRB of Dallas President Logan said, "While tariff increases have left only a modest imprint on inflation so far, they appear likely to create additional pressure for some time." See her prepared remarks here. She did note, however, "Some combination of softer inflation and a weakening labor market will call for lower rates fairly soon." We continue to think that what could tip the balance is a more pronounced weakening in the labor market — private hiring in June was already soft, and we think that should continue to slow into the fall prompting the Federal Reserve to return to easing policy at the September meeting…
Fed's Beige Book slightly improved, still signals uncertainty According to the Federal Reserve System's Beige Book (link here), a summary of anecdata and surveys of regional business contacts, overall economic activity "increased slightly" from late May to early July. Five districts reported "slight or modest" gains, five reported flat activity, and the remaining two districts reported "at least slight declines in activity." The summary of national activity noted, "Uncertainty remained elevated, contributing to ongoing caution by businesses." This squares with the sentiments and trends we have seen of late in manufacturing and services activity surveys conducted by regional Federal Reserve banks. Today's Beige Book signalled some improvement relative to the prior Beige Book, which noted that overall activity had "declined slightly" over the reporting period, which ran from mid-April through May 23.
Employment was characterized as having "increased very slightly" overall. One district noted a modest increase, six reported slight increases, three noted little change, and two noted slight declines. Several districts reported labor shortages, in skilled trade and in reduced availability of foreign-born workers, the latter attributed to changes in immigration policy. A flatware manufacturer in the Richmond district referred to finding skilled labor as a "unicorn hunt." According to the New York district summary, "With the decline in available immigrant workers, some small seasonal businesses reportedly decided not to reopen." The St. Louis district summary noted, "Some contacts shared that they had lost their immigrant workforce due to fears of incarceration and deportation and it was restraining business activity."Generally speaking, the district summaries reported limited layoffs, but a cautious wait-and-see approach to hiring given uncertainty.
Prices reportedly increased across districts — seven districts described price growth as moderate and five described it as modest, similar to the prior report. Tariffs were widely cited as a source of price pressure. "In all twelve districts, businesses reported experiencing modest to pronounced input cost pressures related to tariffs, especially for raw materials used in manufacturing and construction." According to the national summary, "Many firms passed on at least a portion of cost increases to consumers through price hikes or surcharges, although some held off raising prices because of customers' growing price sensitivity, resulting in compressed profit margins." The New York summary noted, "A regional retailer described selectively raising prices on goods with less elastic demand that were not subject to tariffs, in order to offset rising costs among tariffed goods." Like the prior Beige Book, consumers' price sensitivity garnered several mentions. Contacts in a wide range of industries expected cost pressures to remain elevated in the coming months, increasing the likelihood that consumer prices will start to rise more rapidly by late summer, the national summary noted.
On balance, the outlook was "neutral to slightly pessimistic," similar to the prior Beige Book, which collected data through May 23. Two districts expected activity to increase, while the others foresaw flat or slightly weaker activity. Uncertainty was clearly a headwind mentioned by every district — the word appeared 60 times in the district reports altogether.
Covered wagons circling …
July 16, 2025 Wells Fargo: A Modest Rise in June Industrial Output
Summary A better-than-expected print for June industrial production follows upward revisions to May data. It is not quite a manufacturing renaissance, but it is a modestly brighter assessment than would have been expected against a backdrop of gloomy survey data.
Modest Rise Thanks in Part to a Bounce in Utilities…
Finally, from Dr. Bond Vigilante …
16 Jul 2025 Yardeni: PPI Report Comes With A Warning Label!
On Tuesday, June's CPI report was warmer than expected. Today's June PPI report was cooler than expected. Yesterday, we argued that while Trump's tariffs may not be boosting inflation, they may have halted its fall to the Fed's 2.0% inflation target. Measures of consumer price inflation may be stuck closer to 3.0% for a while as a result. This reduces the likelihood of a Fed rate cut in the near future.
However, didn't today's PPI report, showing that it remained unchanged, vindicate President Donald Trump's repeated claim that there's "no inflation," so the Fed should cut interest rates? The PPI report comes with a clear warning label: "The scope of the CPI includes imports. The PPI excludes imports." The PCED measure of consumer prices also includes imports. June's PCED will be reported on July 31. We expect to see it warming up too, from 2.3% to 2.5% y/y, as predicted by the Cleveland Fed's Inflation Nowcasting model (chart). July is also tracking at 2.5%.
… And from the Global Wall Street inbox TO the intertubes, a few curated links …
A view from The Terminal …
July 17, 2025 at 4:00 AM UTC Bloomberg: The Cat, the Chairman, and the TACO The more markets think Trump won’t pull the plug on Powell, the more likely he will.
…An hour later, Trump told reporters in the Oval Office that he wasn’t planning to do this. He didn’t rule out a firing — and called Powell a “knucklehead” — but said it was unlikely for now. All of this had an effect on markets:
From this we can infer that traders hated the prospect of seeing Powell dismissed. But the varying reaction of different assets over the day amplifies the year’s market dynamics. Stocks repaired all the damage and ended at a high; two-year yields descended almost to their lows, leaving the yield curve steeper than it had started; and the dollar, which had enjoyed a bounce of late, sustained some damage.
All of this makes sense. The administration wants lower short-term rates, and is taking other actions (such as fiddling with bond issuance and shifting bank regulation) to get them. That helps the stock market, and weakens the dollar. A new Fed chairman would push rates down further. Compromised independence would pressupward on longer yields, meaning a steeper curve.
Because of this, the market consensus has been that Trump wouldn’t go through with a counterproductive firing. Matthew Luzzetti of Deutsche Bank AG argues:
It would not guarantee lower policy rates, as monetary policy decisions require a majority vote of the FOMC.
Government financing costs could actually increase, as bond yields rise as a result of higher long-run inflation expectations and a greater risk premium related to inflation and Fed independence.
Larger-than-appropriate cuts would likely feed through to higher inflation.
And Powell’s removal could lead to volatility in equity markets.
But while this is all true, there’s a similar market consensus that announcing massive tariffs would be counterproductive. That didn’t stop the president from doing it…
…Some Could Truly Benefit From a Cut
There’s always room for argument over how low rates should be, although it’s hard to find any justification for the president’s preferred rate of 1%. If there’s one group that can made a good case for lower rates, it’s consumers, particularly those paying off mortgages. Mortgage rates have retreated from multi-decade highs. But it’s getting hard to remember that it’s less than five years since the average 30-year mortgage rate was below 3%:
A commensurate growth in wages would have cushioned the impact, but that isn’t happening, particularly for the working class. Atlanta Fed wage-tracker data show that salary rises for the least well-paid 25% of the working population are almost back to where they were when mortgage rates were barely 4% — while inflation is rising nearly as fast as wages:
With higher rates boxing consumers into a tight corner, houses are less and less affordable. By one measure, home affordability is down to levels seen in the mid-80s, when rates began to fall after the Fed under Paul Volcker slew inflation.Such waning demand signals trouble for builders, and investors’ collapsing confidence shows up in this chart of homebuilder stocks’ performance relative to the S&P 1500 composite index:
There are disquieting signs that this is causing financial distress. ATTOM Data shows that foreclosure activity has been rising steadily since the start of the year. Half-year foreclosures were the highest since 2019, but remain below pre-pandemic levels:
This suggests some homeowners are still in economic pain, notes ATTOM’s Rob Barber. Judging by the record levels of household debt measured by the New York Fed, foreclosures will stay high. LegalShield’s Consumer Stress Legal Index shows foreclosure legal inquiries surging by nearly 30% year-on-year last month, the most since November 2020. The measure tracks an average of 150,000 monthly calls to lawyers based on more than 90 areas of law:
Debt is the common thread, says LegalShield’s Matt Layton:
Whether it’s missed mortgage payments, maxed-out credit cards, or mounting buy-now-pay-later balances, debt-fueled household spending is forcing people to ask a lawyer for help.
Despite Trump’s desperation for lower rates, his One Big Beautiful Bill Act missed an opportunity to address the problem decisively by changing mortgage interest tax deductions. Bloomberg Intelligence’s Erica Adelberg and Andrew Silverman argue that while the bill expands builder tax credits, estimates fall far short of projected needs. Raising property-tax deduction limits could even impede existing home sales:
The higher SALT cap subsidizes property taxes in high-cost states, while the mortgage interest deduction, which benefits buyers, remains unchanged. These changes put more money in consumers' pockets, but that may drive up home prices. With greater purchasing power, buyers may bid more, and sellers may raise prices accordingly.
When they happen, rate cuts may offer some relief by boosting borrowing capacity. But the resulting lift in home prices could offset those gains and erode housing affordability. For now, consumers must hang in there, hoping for the sweet spot between monetary and fiscal policy to deliver the correct dose of pain relief.
Some further thoughts / visuals from ‘the beach’ …
June CPI and PPI figures were released this week, and the buzz centers around whether Trump's tariffs have boosted inflation. There is some evidence in the numbers of tariffs boosting the prices of some goods, but it would be premature—and unwise—to declare that yes, tariffs are causing a rise in inflation.
Tariffs arbitrarily increase the price of some goods, but that is not the same as monetary stimulus, which is the only thing that can boost the overall level of prices. Absent an increase in the supply of money, higher prices for some goods will almost certainly result in lower prices for other goods. A household on a fixed budget that is faced with higher prices for food will have to cut spending on some other things.
In any event, it's difficult if not impossible to find evidence in the numbers that inflation is rising. Here are some charts to prove it:
Chart #1
Chart #2
Charts #1 and #2 both focus on the CPI and the CPI without its shelter component. The first chart shows the change in these indices on a 6-month annualized basis, whereas Chart #2 shows the year over year change. I fail to see where the latest numbers have changed the overall picture. By any of these measures, inflation currently is somewhere in the neighborhood of 2-2.7%…
Hedgeye with a question (but the answer is for subs, sorry … :))
