Wouldn't believe it if we didn't see it!

• July PPI up 1.2% headline and .7% at the core,  WAY higher than either expectation
• BUT treasuries and MBS both between level and positive on the day! (6.0's at 100-08)
  
• Though bonds hated inflation?
• Looks like market consensus has "moved on" to assuming lower inflation in the future due to commodity deflation.  Maybe they're right...
• Stocks are taking the news worse with the Dow set to open 100 pts down.  Continued stock weakness today will help bonds as we're done with the critical scheduled data for the day.
• MBS are slightly weaker compared to treasuries owing to a hangover from yesterday's headline risk.  Each passing day Fannie and Freddie stay in business, tightening becomes more possible.
• Housing Starts Down 11%.  Single Family construction is the lowest in the 9 year history of this report.  It has fallen 29 straight months and is down over 30% from a year ago, also a record.  None of this was very deviant from expectations.
• Float Club:
• Rule 1, you don't talk about float club!  Rule 2, Everyone Floats at Float Club.
• if you don't mind some risk, it's a great sign to see such resilience in fixed income considering PPI.  Techs are strong.  Looks like we'll make it to rate sheets today with level prices day over day.  So at the very least, stay glued here and lock at the end of the day (or before if there's an alert).
• No Data Tomorrow and fairly heavy day on Thursday.  Then no data again friday.  This=volatility.

Your Pal,

Tyler Durden