On the data front, another upside surprise in U.S. inflation grabbed most attention, even if the bond market continued to hardly pay attention. U.S. consumer prices surged 0.9% in June, nearly doubling expectations and the biggest one-month move since 2008. That’s now up 5.4% y/y, or even stronger over shorter periods (i.e., it’s not just base-year effects). Meantime, core inflation also doubled expectations, up 0.9% in June, or the second biggest increase since 1981 (and trailing only the gain seen two months ago). Core prices were up 4.5% from a year ago (fastest since 1991), and even hotter over the past 3- and 6-month periods. Gains are also becoming quite broad based, and feedback from the NFIB survey and Federal Reserve Beige Book also suggest further upward pressure from businesses themselves. Despite all signs pointing up on inflation, Treasury yields came down, again, with the 10-year finishing the week a snick below 1.3%. As they say, a market that doesn’t respond bearishly to bearish news…is not bearish. As for the central banks? While some global monetary policymakers are pulling forward tightening expectations, the Fed and BoC still seem content. That said, we now see both moving earlier on rates, with the BoC in October 2022, and the Fed in January 2023--the risk remains even earlier rather than later.
|Table 1 - Market Performance|
|Source: BMO Economics, Bloomberg|