Rising inflation and a weakening labor market push Treasuries higher

Treasury prices are rising today as several economic indicators released early this morning came in with worse than expected results. The 2-year note is up 1/32 to yield 0.18% while the 5-year note has gained 10/32 yielding 0.85%. Meanwhile, the benchmark 10-year note is trading 27/32 higher to yield 2.06% and the long bond has increased 2 points so far yielding 3.45%. According to the Labor Department, the Consumer Price Index, one of the main inflation gauges along with the PCE Deflator, was 0.50% last month, surpassing analysts’ expectations of a more moderate 0.20% increase for the period. Core CPI, which does not take into consideration the more volatile food or energy prices, rose 0.20%, which was in line with forecasts.  Meanwhile CPI YoY was 3.60%, analysts had anticipated a 3.30% change for the month, and core CPI YoY was 1.80%, 10 basis points higher than expected.

In signs that the labor market continues to be weak, this morning’s Jobless Claims report showed worsening conditions across the board. Initial Jobless Claims rose 9,000 from the previous week to 408,000. This increase was higher than expected as analysts had forecasted new claims to only reach 400,000. Last week’s number was also upwardly revised by 4,000 to 399,000. Continuing claims also rose more than anticipated to 3.702 million beating the 3.700 million forecast. The previous week’s number was revised 7,000 higher to 3.695 million. This represents a 148,000 drop from the previous period. Finally, the 4-week average number of initial claims did drop to 402,500 versus the 406,000 number registered previously. The worse than expected inflation number, coupled with a weak jobless claims report will make it even more difficult to find more ways to stimulate the economy without running into the risk of rising inflation.

In other economic news, the Existing Home Sales report will be released later this morning.  This report is considered a good indicator of housing activity and sets the mood for what investors can expect tomorrow as it precedes the New Home Sales report (315,000 expected). This report will come out at 9:00 am CT and is expected to show existing sales reached a 4.90 million annual rate, or a 2.70% increase for the month of July. Also, Leading Economic Indicators, an index of ten economic indicators which predicts economic activity 6 to 9 months in the future, will be released at 9:00 am CT.  Analysts are forecasting the index to report a 0.20% change for July. Finally, at the same time, the Philadelphia Fed business survey will be releasing its August index; analysts are expecting a reading of 2.0 or a 1.20 drop from the previous month.