Analysis will be coming out in reverse order this morning as the Day Ahead is not out yet (it will cover broader themes while this update will deal with the more timely details).
Timely details are as follows with respect to 8:30am data:
- CPI came out generally in line with expectations. Core annual CPI was +2.1 vs +2.2 forecast, which is better than a sharp stick in the eye for bonds
- Jobless claims were also in line at 254k vs 255k forecast. Continued Claims edged higher, also not too bad for bonds
- Empire State Manufacturing at 9.0 vs 4.0 forecast--small negative implication for bonds
- Philly Fed at 21.5 vs 9.0 forecast. This is the big news of the morning (mostly driven by future expectations/outlook, by the way. Businesses are excited about deregulation and lower taxes. Go figure).
The Philly Fed numbers would be doing huge damage to bond markets on any other day, but haven't done any damage this morning. In fact yields are lower vs 8:30am. If you're thinking to yourself (quite logically) something along the lines of "yeah... no wonder Philly Fed isn't doing any damage considering the amount of damage that's already been done over the past 16 hours," you win. The sell-off has limits as to how far it will be stretched before trading levels themselves become more relevant indicators than economic data.
Not only that, but economic data isn't in much focus at the moment. Traders are cleaning up 2016's positions in many cases. Other traders are more interested in capitalizing on short term momentum. And finally, consider the fact that positive economic data is a logical byproduct of the realities that have already caused bonds to sell off.
In other words, strong data validates the weakness we've already seen as opposed to serve as justification of new weakness. I do think we'd be a bit more sensitive to the CPI data if it had been much stronger than expected, but the fact that Philly Fed numbers reflected excitement about lower taxes and regulation is to be expected.
10yr yields have fallen to 2.60 from opening highs near 2.63 and Fannie 3.5s are up to 101-07 after opening at 100-29.
