Usual CPI Playbook?
May US CPI report at 1230 GMT/13:30 London/BST The headline is expected at 4.7% y/y with core prices up 3.5%. With numbers like that, it's astonishing that US 10-year yields are at 1.48% and down 15 bps from Thursday's close.
The message from the bond market increasingly aligns with the Fed's message: that it's all temporary. Even for the Fed though, that requires a leap of faith at an unprecedented time.
Perhaps some of the weight on yields is on the supply side. Congress is struggling to find any common ground on an infrastructure package and if the result is an impasse or much smaller package that would mean a lower deficit and less inflation-fueling growth.
The main driver in the day ahead though will be CPI. Estimates are tightly bunched around 4.7% and that suggests some degree of confidence. The fear is of a 5% print and that might have been responsible for some of the strength in the dollar Wednesday.Don't forget the playbook from recent inflation numbers though. The prior CPI was a big upside surprise but the dollar rally was short lived. This time, the Fed is in the blackout period so they won't be able to push back but we're confident that they eventually will.