QI TAKEAWAY — Not even a WSJ leak could stop speculators from pricing a better-than-coin-flip probability for a Fed 100-basis point hike, a la Bank of Canada, come July 27th. If you plan to go long duration in Treasuries, Wednesday’s news gave you a green light.
- Yesterday’s 9.1% YoY CPI print, as well as the Bank of Canada’s shock 100 bp hike, helped drive the biggest move in the Eurodollar market since 1989; despite surprising to the upside, housing, which accounts for 40% of the index, could still drive the headline even higher
- Core CPI has likely peaked, easing to 5.9% YoY in June vs. 6.5% YoY in March, as has core goods CPI, now down to 7.2% from February’s high of 12.3%; however, core services CPI rose to a cycle high of 5.5%, and is likely to march higher due to its larger wage component
- Per the BoC’s quarterly outlook survey, a record 89% of respondents reported inflation expectations above their 2% target; their surprise hike, which gave credence to the Fed also hiking by 100 bps at the end of July, helped to flatten both countries’ 2s/30s yield curves