The importance of economic reports like the Consumer Price Index (CPI) cannot be overstated in the current environment.  Case in point, this month's installment came in right in line with expectations, and that was good for just as much of a rally in bonds as last week's ISM Manufacturing report (which actually came in significantly weaker than expected).  Unfortunately, heavy selling in EU bonds and a looming Treasury supply environment are pushing back on the early rally.  That said, a closer look at the CPI numbers provides hope for the coming months.

This is especially true for one of the most critical components of CPI in the post-pandemic era: OER, or Owners' Equivalent Rent.  OER accounts for a QUARTER of all inflation and more than HALF of core services inflation.  It is the worst offender in the crimes committed against the bond market in 2022, and has been one of the most stubborn line items in the journey back toward target levels.

Stocks and bonds and Fed Funds Futures all agreed that the Fed should like this particular report:

But again, the initial gains are proving to be short-lived.  Again, Europe isn't helping...

The mid-day time frame will be interesting as European trading ends and the US bond market digests the 10yr Treasury auction.  Then at 2pm, we'll get the Minutes from the most recent Fed meeting.  As a reminder, this is not a new policy announcement--merely additional insight behind the decision to hike 25bps back in mid March.