Notes for Wed, Jul 15, 2026

Soft June PPI puts near-term hikes off the table; none of yesterday's break tests tripped, so the dovish front-end read carries into tomorrow's claims and retail.

The read

We come out of today with yesterday's trade intact. June PPI printed soft, headline down 0.3% month-over-month, the largest drop since April 2020, with core at +0.2% against +0.3% expected^[1], following Tuesday's June CPI at -0.4% headline, flat core, and core year-over-year cooling to 2.6%^[2]. The market now prices July near 9% and September near 45%^[3]; that's a delay, not a pivot, with roughly 35bp of full-year tightening still in the strip^[4]. We read the session as confirming the disinflation-led front-end bid, not opening a new hawkish leg.

Scorecard on the record

Yesterday's note put three break tests on record; we walk each. PPI was the one that could have tripped us, and on the print that matters it didn't, sequential core came in below consensus, so the hot-pipeline test failed. The caution sits one layer down: core goods still run +5.1% year-over-year and services pricing accelerated to +4.6%^[5], so breadth hasn't cracked, the same message as CPI services ex-energy stuck at 3.2% year-over-year^[6], and our assumption that PPI wouldn't reveal sticky goods pass-through is on notice, not broken. Load-bearing point: the month-over-month, which feeds near-term policy, was soft; the year-over-year stickiness is a slower burn into core PCE, not a today problem.

Hormuz didn't trip us either, and this is the observation whose absence would flip the call. Escalation is real, transit is down to six ships against a 14-to-20 norm and the strait is actively contested^[7], but WTI is sitting near $78^[8], not sustainably higher, and MarineTraffic counted 21 crossings on 14 July^[9]. Gasoline is grinding toward $4 a gallon with flow-through pegged to the August-September CPI^[10], not June. Oil hasn't bled into core, so the energy-relief assumption holds at the price level even as the geopolitical tail stays fat.

Warsh gave us nothing new: he doubled down on inflation but offered no reaction function and let the task-force review slide, with nine officials in the June minutes still wanting hikes^[11]. No leak toward imminent tightening; test not tripped. Net, three tests, none tripped, and the dovish front-end stance carries. It breaks if the next core PCE confirms the +5.1% goods pipeline, if WTI holds a sustained bid above the mid-$80s into core, or if Warsh's next turn actually prints a reaction function.

Beige Book

The Beige Book landed consistent with a hold-and-watch Fed. Eleven of twelve districts reported activity picking up, with San Francisco the lone flat district^[12]; labor firmed, with five districts showing modest-to-solid employment gains against one in the prior round^[13]. On prices, the tell for us: price growth ran moderate and same-or-slower than the prior period in every district^[14], but non-labor input costs rose on energy, tariffs, and Middle East conflict^[15]. Same shape as the PPI, headline cooling, pipeline pressure lingering. Nothing here forces a front-end reprice on its own.

Funding: ample, one loud exception

System liquidity is comfortable. Reserves rose to $3.10trln in the week to 8 July^[16], up from $2.97trln a week earlier^[17], as the Treasury General Account drained to $749bn^[18] from $807bn^[19], that TGA drawdown is putting cash straight back into reserves. SOFR firmed to 3.63% on 14 July^[20] from a 3.53% low on the 9th^[21], but it still sits two basis points below IORB at 3.65%^[22]; this is supply-driven firming into the auction calendar, not reserve scarcity, RRP take-up is essentially empty at $0.3bn^[23], so the cash is deployed, not fleeing to the facility. GC repo is unremarkable, with overnight Treasury GCF at 3.65%^[24].

The exception is loud and single-name: the January 2027 bill, CUSIP 912797TM9, cleared SOMA securities lending at 307bp on 15 July^[25], up from 59bp on the 7th^[26], a week-long, deepening special. That issue is financing extremely rich, well through GC, and the specialness is isolated to that one line. We flag it because it's the largest specials print in the book; we're not reading contagion absent a second issue joining.

Curve and supply

The curve steepened into the print: 2s10s widened to 40bp on 14 July^[27] from 36bp the day before^[28]. We line up with Boockvar's read that the 10-year real rate is up about 65bp since February^[29] and that the back-up is sovereign supply absorption and term premium, not Fed tightening^[30]. The 2-year at 4.26%^[31] still sits some 60bp above effective funds at 3.63%^[32], so the front is pricing a tightening path, not cuts, anyone calling 'nothing priced' is wrong. Thirty-year at 5.10%^[33] and 10-year at 4.62%^[34] carry the term-premium story.

Supply is the near-term pressure. Treasury runs roughly $210bn combined across the curve Thursday^[35] on top of heavy bills, with the bill curve flat at 1-month 3.70% and 3-month 3.79%^[36]. Our lean is bull-steepener: front-end richer as the near-term hike prices out, back-end sticky-to-cheaper on concession. That's the trade into tomorrow.

Into tomorrow

Claims (215k prior) and retail sales print tomorrow morning. They arbitrate whether the disinflation read sticks or the oil tail reasserts. Positioning: hold the front-end receiver, keep it moderate given the geopolitical two-way, and run the steepener against it. The clean risk is a hot retail print alongside a WTI break higher, that flips the front from richer to a bear-flattener fast.

Sources read

8 sources read

• Commentary items: 8

Citations

1. [1]headline down 0.3% month-over-month, the largest drop since April 2020, with core at +0.2% against +0.3% expected (PPI headline -0.3% MoM (largest drop since Apr 2020), core +0.2% vs +0.3% exp, YoY core at 4.7%) — Commentary · zerohedge.com
2. [2]following Tuesday's June CPI at -0.4% headline, flat core, and core year-over-year cooling to 2.6% (.4% drop vs .1% expected, core flat vs .2% forecast, with y/o/y core cooling to 2.6% from 2.9%) — Commentary · peterboockvar.substack.com
3. [3]The market now prices July near 9% and September near 45% (July cut now 9% priced, Sept 45%) — Commentary · zerohedge.com
4. [4]roughly 35bp of full-year tightening still in the strip (Funds now pricing just 35bps of tightening for full year) — Commentary · zerohedge.com
5. [5]core goods still run +5.1% year-over-year and services pricing accelerated to +4.6% (core goods remain stubborn at +5.1% y/y and services pricing accelerated to +4.6% y/y) — Commentary · peterboockvar.substack.com
6. [6]CPI services ex-energy stuck at 3.2% year-over-year (services ex-energy holding at 3.2% y/o/y signals disinflation stalling outside commodity relief) — Commentary · peterboockvar.substack.com
7. [7]transit is down to six ships against a 14-to-20 norm and the strait is actively contested (Iran blocking 20% of normal transit (6 ships vs 14-20 typical), IRGC asserting wartime control, tanker strikes ongoing) — Commentary · zerohedge.com
8. [8]WTI is sitting near $78 (Oil at $78/bbl is pricing in partial blockade, not full closure) — Commentary · zerohedge.com
9. [9]MarineTraffic counted 21 crossings on 14 July (Vessel traffic through Hormuz increased slightly to 21 confirmed crossings on 14 July according to MarineTraffic data) — Commentary · zerohedge.com
10. [10]Gasoline is grinding toward $4 a gallon with flow-through pegged to the August-September CPI (Gas prices pushing toward $4/gal on Middle East escalation + refining disruption, flow-through to headline CPI in Aug/Sep print) — Commentary · zerohedge.com
11. [11]he doubled down on inflation but offered no reaction function and let the task-force review slide, with nine officials in the June minutes still wanting hikes (Warsh doubles down on inflation hawkishness... his refusal to guide and task-force delays... despite June FOMC minutes showing 9 officials want hikes) — Commentary · zerohedge.com
12. [12]Eleven of twelve districts reported activity picking up, with San Francisco the lone flat district (economic activity improved... 11 of 12 Federal Reserve Districts reporting slight to moderate growth; San Francisco District reported no change) — Commentary · zerohedge.com
13. [13]five districts showing modest-to-solid employment gains against one in the prior round (Employment rose on balance with 5 Districts showing modest to solid gains... improvement from prior period when only 1 District had such gains) — Commentary · zerohedge.com
14. [14]price growth ran moderate and same-or-slower than the prior period in every district (Prices increased moderately overall across 9 Districts... price growth was same or slower in all Districts compared to prior period) — Commentary · zerohedge.com
15. [15]non-labor input costs rose on energy, tariffs, and Middle East conflict (Non-labor input costs rose across services, construction, and manufacturing due to energy, transportation, raw materials costs, tariffs, and Middle East conflict impacts) — Commentary · zerohedge.com
16. [16]Reserves rose to $3.10trln in the week to 8 July (3098911) — FRED WRESBAL · Jul 8, 2026
17. [17]up from $2.97trln a week earlier (2966897) — FRED WRESBAL · Jul 1, 2026
18. [18]the Treasury General Account drained to $749bn (749244M closing) — Treasury General Account · Jul 8, 2026
19. [19]from $807bn (807359M closing) — Treasury General Account · Jul 1, 2026
20. [20]SOFR firmed to 3.63% on 14 July (3.63000) — NY Fed SOFR · Jul 14, 2026
21. [21]from a 3.53% low on the 9th (3.53000) — NY Fed SOFR · Jul 9, 2026
22. [22]two basis points below IORB at 3.65% (3.65000) — FRED IORB · Jul 15, 2026
23. [23]RRP take-up is essentially empty at $0.3bn (0.27800000) — FRED RRPONTSYD · Jul 14, 2026
24. [24]overnight Treasury GCF at 3.65% (UST 3.65300) — DTCC GCF repo · Jul 14, 2026
25. [25]cleared SOMA securities lending at 307bp on 15 July (912797TM9 (B 01/21/27) at 307.1 bp, $1.57B accepted) — Observation · observation:seclend_observations:912797TM9:2026-07-15
26. [26]up from 59bp on the 7th (912797TM9 (B 01/21/27) at 59.3 bp, $2.07B accepted) — Observation · observation:seclend_observations:912797TM9:2026-07-07
27. [27]2s10s widened to 40bp on 14 July (0.40000000) — FRED T10Y2Y · Jul 14, 2026
28. [28]from 36bp the day before (0.36000000) — FRED T10Y2Y · Jul 13, 2026
29. [29]the 10-year real rate is up about 65bp since February (US 10yr real +65bp since Feb) — Commentary · peterboockvar.substack.com
30. [30]sovereign supply absorption and term premium, not Fed tightening (sovereign supply absorption is hiking real yields in a low-inflation regime, not a Fed-tightening story) — Commentary · peterboockvar.substack.com
31. [31]The 2-year at 4.26% (4.26000000) — FRED DGS2 · Jul 13, 2026
32. [32]above effective funds at 3.63% (3.63000) — NY Fed EFFR · Jul 14, 2026
33. [33]Thirty-year at 5.10% (5.10000000) — FRED DGS30 · Jul 13, 2026
34. [34]10-year at 4.62% (4.62000000) — FRED DGS10 · Jul 13, 2026
35. [35]roughly $210bn combined across the curve Thursday (Treasury auctioning heavy across the curve Wed-Thu ($72bn 4m, $210bn combined Thu)) — Commentary · conks.plumbing
36. [36]bill curve flat at 1-month 3.70% and 3-month 3.79% (Bill curve remains flat (1m at 3.70%, 3m at 3.79%)) — Commentary · conks.plumbing

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