Rates as of 0500 GMT

Market Recap

CAD was the big mover since Friday morning. It fell through 1.29 again as oil prices firmed.

Of course, that begs another question why today? Why is USDCAD following oil today when it doesnt necessarily follow it every day?

Its not because of rate spreads, which moved in USDs advantage Friday.

My guess is that its in part a reaction to USD weakness. The dollar was hit by the market continuing to price in less Fed tightening. Wednesday and Thursday it was in the long end of the fed funds contracts as the market began pricing in a recession that would force the Fed to ease. Friday the contracts at the front end shorterdated contracts began to price in less tightening too. The tightening expected by December fell by 16 bps over the week, 5 bps of which was on Friday.

The key point on Friday was the final revision of the U of Michigan consumer sentiment survey. The consumer sentiment index was revised down slightly to a record low, and even more importantly, the surveys longterm inflation expectations were revised down to 3.1 from an initial 3.3. The unexpected jump in that measure from 3.0 on June 10th, just a few days before the Feds June 15th meeting, was said to be an important factor in their hiking by 75 bps rather than 50 bps as foreshadowed. Thats because central bankers live in dread of inflation expectations becoming unanchored.

On the other hand, US new home sales were far far better than expected, which suggests…