Rates as of 0500 GMT

Market Recap

The US news on Friday was whats called a Goldilocks scenario not too hot, not too cold, but just right if you know the story of Goldilocks and the three bears. US retail sales came out above expectations see table above while the closely watched but virtually worthless U of Michigan consumer sentiment index bounced off its record low.

What was particularly important in the U of M survey was that the 5yr5yr inflation expectations inflation expectations for the five years beginning five years from now fell to 2.8 from 3.1. The minutes of the June meeting of the ratesetting Federal Open Market Committee FOMC showed that one reason the Committee decided to hike rates by 75 bps at that meeting instead of the widely anticipated 50 bps was the rise in this indicator from 3.0 to 3.3 later sometime after the meeting revised down to 3.1 but the damage was done. In any case it showed the weight that the members put on inflation expectations, which are now receding. The 1year inflation expectations also fell modestly to 5.2 from 5.3.

So the data showed resilient US consumption and falling inflation expectations the best of both worlds. Never mind that in real terms, i.e. after adjusting for inflation, US retail sales were down that fact was dismissed.

Moreover several Committee members pushed back on the idea of a 100 bps hike in July. EG Atlanta Fed President Bostic nonvoter commented about the risks of moving too dramatically and…