MACRO ANALYSIS: MNI US Macro Weekly: CPI To Say If Disinflation Given A Chance

• Treasuries look to finish near steady to mildly higher Wednesday, inside session range as US/Iran deal optimism vacillated.
• Treasuries inched off midday lows following the latest Iran headlines - for what they are worth - that Iran has received messages that US is "ready to return to it's pledges" - that in itself "is not enough" to reopen the strait, followed by a even less optimistic headline that ther have been "no talks with the US ... in recent days".
• Currently, TYU6 trades +1 at 108-28 vs. 109-01 high, yield +.0082 at 4.6208%. Key resistance is 109-08, the 5–day EMA. Projected rate hike pricing consolidating vs. late Tuesday levels (*): Sep'26 at +13.7bp (+14.5bp), Oct'26 at 20.4bp (20.9bp), Dec'26 31.3bp (+31.8bp), Jan'27 33.9bp (34.9bp).
• The services PMI saw a solid upward revision in its final July reading and an unexpected one considering Monday’s manufacturing report had been only revised marginally higher. Services PMI: 54.6 (cons 53.6, flash 53.6) in July after 51.2 in June - strongest since Oct 2025
• ADP employment was softer than expected as it increased 44k in July (sa, cons 65k) after a marginally downward revised 95k (initial 98k) in June, seeing its softest monthly increase since January.
• Cross asset update: Stocks are mixed late Wednesday, paring gains after the DJIA and SPX emini indexes climb to new record highs in the first half (54744.33 and 7820.25 respectively). Sentiment gradually cooled as the day wore on with no announcement of a verified deal - the Nasdaq trading in the red at approximately 26444.0 vs. 26739.0 high (still shy of early July record high of 27093.0).
• Crude weaker: WTI Sep 26 is down by 0.7% at $75.2/bbl.
• Look ahead: ​Italy industrial production, GB construction PMI, EU Retail Sales, Mexico rate annc. Main focus remains on Friday's July employment report for the US.

• Looking ahead to Friday's nonfarm payrolls report, MNI's compilation of primary dealers' expectations for payrolls growth is slightly more pessimistic than the broad Bloomberg median at 75k (cons 80k) but a little more optimistic on private payrolls at 90k (cons also 80k).
• The relative difference between the primary dealer medians for nonfarm and private payrolls are in part down to a reduced sample for private estimates, with more entries missing at the lower end of the spectrum.
• A majority expect the unemployment rate to round to 4.2% again although there is a clear dovish skew to risks with six primary dealer analysts looking for 4.3%. 

• AHE growth is also seen at 0.3% M/M again but with a dovish skew with five looking for 0.2% M/M. 

   

A few analyst reactions to the August refunding announcement suggest limited shifts to overall issuance expectations, including the median consensus of the next nominal coupon upsizing coming in May 2027. Some took note of the alteration in the guidance paragraph to refer to "changes" as opposed to "increases" in auction sizes.

• TD notes "We believe Treasury's modest change in guidance could provide additional support for the long end of the curve and long-end swap spreads amid hints that decreases to long-end auction sizes are possible." Their overall view on the path of coupon issuance is unchanged: "We look for Treasury to change forward guidance on auction sizes in November and only look for auction size increases in May 2027, with risks tilted to later increases. Any increases in 2027 are likely to be concentrated in the 2-10y sector." On bills, they see net issuance of +$225B in Q3 and $223B Q4.
• Jefferies writes of the TBAC minutes, "clearly, the discussion about future changes to auction sizes or guidance pertaining to auctions was not that extensive, reflecting a low sense of urgency to change anything immediately. However, as time continued to pass, the possibility of changes to the "next several quarters" language continues to increase." Jefferies looks to net bill issuance of around $375B in Q3 and $231B in Q4, based on this week's announcements.
• BMO also noted "The shift away from "increases" to "changes" could simply be a transition away from forward guidance, or it could be laying the groundwork for something as unexpected as lowering longer-dated coupon auction sizes. However, this is not our current expectation, just food for thought."
• CIBC, who had expected the guidance language to be changed at this Refunding, did not change their overall view on the next upsizing: "While the Treasury did not remove the no coupon auction changes for several quarters language, we still think the first increases in coupon auctions will happen next May.  Waiting for August would require a more aggressive ramp in auction sizes, which would be more disruptive.  We think that gets announced at the November refunding announcement, which is the day after midterms."  
• Bloomberg reported post-Refunding that Citi "continues to expect increases in May 2027, however its strategists 'see a growing risk of increases in the second half of 2027 or potentially in 2028'".
• Wells Fargo said it’s "very unlikely that Treasury will increase auction sizes in February as we had expected"...however they still think auction sizes will increase by the Sept. 30, 2027 end of the fiscal year", also as quoted by Bloomberg.