The most important today was the Producer Price Index (PPI) and the core-PPI, published at the opening bell.

PPI was anticipated to be below last month’s report of +0.9%, with expectations of +0.1% to +0.2%. In fact it was far below that number and prices even went down -0.2%.

The bond market ignored that number, as it usually does and concentrated on core-PPI. Core-PPI excludes wholesale food and energy costs and was expected to match May’s number at +0.2% across the board. The bond market was surprised to a degree with a +0.3% increase. That caused the 10-year Treasury to open at 5.055% or, +.014% above Monday’s close.

In mid-morning the very important Industrial Report which includes Production and Capacity.

Production measures how much goods are coming out of the nations factories, mines etc. The forecast was for +0.3% to +0.6%. Our factories increased production at the high end of predictions at +0.5%. As an inverse number, this could have been good for rates had it been higher.

Industrial Capacity is not an inverse number. It measure what percent of the factories, mines, forests etc. are being used. Anything above 80% is seen as inflationary since new factories need to be built, which means the more dollars chasing the same supply. This blog thought that Capacity may have given rates a bad day if this is higher than the 81.5 to 81.6 predicted. Turned out it was a bit higher than predicted, at 81.7% which

Net Foreign Purchase was out fifteen minutes before the Industrial Report, but it is seen as a low importance indicator and did not affect rates. $126.1B came from foreign investors into the US.

The UBS Store Sales Index and Redbook Survey’s were out in early morning, but are seldom noticed by traders or bond investors. Both indicate a reversal in retail sales and may be noticed by the bond market in August or September. UBS was +0.3% in week to week, and +3.4% in year to year. Redbook was +0.7% in its week to week survey.

The NAHB’s Housing Index is published at 12:00cdt {17:00gmt} and has impacted rates recently. There are no estimates for this item. It was at 24.0, lower than last month’s 28.0. It may have caused rates to drop some, bringing the 10-Year Treasury to its day low of 5.041%, exactly flat with yesterday’s close.

Also at 12:00Kansas City Federal Reserve Bank President Thomas Hoenig (an FOMC voting member) is scheduled to speak about monetary policy & the U.S. economic outlook, in North Platte, Nebraska. Audience Q&A possible. It seems that he made some bearish comments as the 10-year Treasury reversed from the low at 12:30cdt {17:30gmt}.

The 10-year Treasury closed +.037% with the rate at 5.078%.

SHORT-TERM OUTLOOK [16 July 2007]

Wednesday’s market opening sees the very important Consumer Price Index. CPI is forecast at +0.1% across the board, far below last month’s +0.7%. Core-CPI which excludes food and energy also has across the board estimates at +0.2% above last month’s +0.1%.

Along with the CPI is the recently important Housing Starts & Building Permits numbers. Starts are looking to be 1450k to 1460k. Building Permits are less noticed by investors and are expected to be 1480k to 1500k.

There are some less than important numbers (as far as bonds are concerned) out like the MBA Purchase Application Index.

The biggest news of the day will be FED Chair Ben Bernanke’s semi-annual monetary policy testimony to House Financial Services Committee, in Washington at 09:00cdt {14:00gmt}

Thursday starts to quiet down in the morning with the weekly Initial Jobless Claims, the Leading Economic Indicators, and Philadelphia Fed Index.

Soon after the bond market will pay attention to FED Chair Bernanke’s testimony before the Senate.

The activity in the afternoon picks back up with the release of the FOMC Minutes.

There is no significant data on Friday.

Steve Boxmeyer [612] 799 – 6858

steve@LendWithIntegrity.com