Good Morning. Happy Friday.

I was startled from a deep slumber early this morning by an earthquake.  I'm sure folks on the West coast might mock me for saying so, but the 3.6 magnitude tremor we experienced was an extremely uncommon event for residents of the D.C. metro area, and it scared the hell out of me! 2012 here we come...Glenn Setzer screams conspiracy

Consumer level inflation data flashed at 830 and unlike a random earthquake in a random place,  it surprised no one. HEADLINES WILL READ: U.S. CONSUMER PRICES DOWN FOR THIRD STRAIGHT MONTH IN JUNE, LONGEST STRING OF DECLINES SINCE OCT-DEC 2008,  JUNE YEAR-OVER-YEAR CPI WEAKEST READING SINCE OCT 2009 (-0.2 PCT).

From the Release:

The Consumer Price Index declined 0.1 percent in June on a seasonally adjusted basis. Over the last 12 months, the index increased 1.1 percent before seasonal adjustment. Similarly to April and May, a decline in the energy index caused the seasonally adjusted all items decrease in June. The index for energy decreased 2.9 percent in June, the same decline as in May, with a decline in the gasoline index accounting for most of the decrease. This more than offset an increase in the index for all items less food and energy, while the food index was unchanged for the second month in a row.

The index for all items less food and energy rose 0.2 percent in June after increasing 0.1 percent in May. A broad array of indexes posted increases, including shelter, apparel, used cars, medical care, tobacco, and recreation. These increases more than offset declines in the indexes for household furnishings and operations and for airline fares. The 12-month change in the index for all items less food and energy remained at 0.9 percent for the third month in a row.

08:30 16Jul10 RTRS-U.S. JUNE CPI -0.1 PCT (-0.1358; CONSENSUS 0.0), EXFOOD/ENERGY +0.2 PCT (+0.1588; CONS +0.1 PCT)
08:30 16Jul10 RTRS-U.S. JUNE CPI YEAR-OVER-YEAR +1.1 PCT (CONS +1.2), EXFOOD/ENERGY +0.9 PCT (CONS +0.9 PCT)
08:30 16Jul10 RTRS-U.S. JUNE UNADJUSTED CPI INDEX 217.965 (CONS 218.290) VS MAY 218.178
08:30 16Jul10 RTRS-U.S. JUNE REAL EARNINGS ALL PRIVATE WORKERS -0.2 PCT (CONS 0.0) VS MAY +0.7 PCT (PREV +0.8 PCT)

I hate to say it but smokers may have saved us from hearing more deflationary outries from boob tube pundits. Thank goodness for tobacco! The Fed has their hands full with falling price levels, but don't say deflation yet...say disinflation!

UoM Consumer Sentiment just printed and it wasn't pretty. HEADLINES: CONSUMER SENTIMENT READING LOWEST SINCE AUGUST 2009.  CONSUMER EXPECTATIONS INDEX LOWEST SINCE MARCH 2009

09:55 16Jul10 RTRS-THOMSON REUTERS/U. OF MICH US CONSUMER SENTIMENT PRELIM JULY 66.5 (CONSENSUS 74.5) VS FINAL JUNE 76.0
09:55 16Jul10 RTRS-THOMSON REUTERS/U. OF MICH CURRENT CONDITIONS INDEX PRELIM JULY 75.5 (CONSENSUS 84.0) VS FINAL JUNE 85.6
09:55 16Jul10 RTRS-THOMSON REUTERS/U. OF MICH CONSUMER EXPECTATIONS INDEX PRELIM JULY 60.6 (CONSENSUS 68.4) VS FINAL JUNE 69.8
09:55 16Jul10 RTRS-THOMSON REUTERS/U. OF MICH 12-MONTH ECONOMIC OUTLOOK INDEX PRELIM JULY 65 VS FINAL JUNE 79
09:55 16Jul10 RTRS-THOMSON REUTERS/U. OF MICH 1-YEAR INFLATION OUTLOOK PRELIM JULY 2.9 PCT VS FINAL JUNE 2.8 PCT
09:55 16Jul10 RTRS-THOMSON REUTERS/U. OF MICH 5-YEAR INFLATION OUTLOOK PRELIM JULY 2.9 PCT VS FINAL JUNE 2.8 PCT
09:55 16Jul10 RTRS-TABLE-Reuters/U Mich July prelim sentiment index 66.5

It sounds like main street is hearing the Fed's "Long Slow Choppy" recovery rhetoric...loud and clear!

Stock futures tanked after weaker than expected econ data, Treasuries are catching a FTQ bid and mortgages are playing follow the leader,  albeit from a widening distance.

S&P futures are retesting the lows of the week as funds flow out of risk markets. S&Ps are -16.75 at 1073.75.  Short covering should ensue and stabilize flows for the time being...

The 3.50% coupon bearing 10 year note is +0-15 at 104-24, down 5.3bps to 2.941%. I expect to see 10s chop around between 2.92 and 2.98% while stocks find their footing. 

The SEPT FNCL 4.0 is up 5 ticks at 101-16. The SEPT FNCL 4.5 is trading +0-03 at 103-21. The secondary market current coupon is 2.9bps lower at 3.747% (the street has the CC in the 3.60s now) and yield spreads are wider.

Loan pricing s/be better this AM...