Markets rally as PCE data meets expectations

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Published Date 5/31/2024

Inflation in April didn’t increase or decrease; the estimates markets were expecting were exactly in line with the data. Month/month PCE thought to be +0.2% reported at +0.2% but was down from +0.3% in March; year/year forecasts +2.7% reported at +2.7% and was unchanged from March. The core, ex food and energy also in line with estimates and unchanged from March, month/month +0.2% as expected, year/year +2.8% as expected and unchanged from March. Inflation didn’t increase but still at +2.8% year/year.

April personal income forecasts at +0.3% month/month, reported +0.3%; personal consumption (spending) month/month +0.2% down from 0.3% estimates. Income down from +0,5% in March and spending down from +0.7% adding to the view seen in yesterday’s GDP lower than expectations and that consumers are slowing spending.

The initial reaction dropped the 10 year yield from 4.57% to 4.52%, MBS prices increased 15 bps from yesterday. The odds for an ease this year increased to 50% for September, 63% for November and 82% for December, compared to 49%, 62% and 81% respectively, prior to the release. The lack of increasing inflation is positive news and confirmed market forecasts, but it isn’t likely to warm the hearts at the Fed, inflation didn’t decline, still above what the Fed wants.

Just four days this week but volatility high. Tuesday and Wednesday Treasury sold $183B of 2s, 5s and 7s, the demand was very weak sending rates higher. Comments from Fed officials that rate increases might be a possibility. Yesterday Q1 GDP growth revised from +1.6% to 1.3% turned rates around and the 10 year yesterday declined 7 bps after increasing 7 bps on Wednesday, recovering the increase seen on Wednesday.

At 9:30 am the DJIA opened +43 (-825 from last Friday), NASDAQ +36, S&P +10. 10 year note at 9:30 am 4.51% -4 bps. FNMA 6.0 30 year coupon at 9:30 am +18 bps from yesterday’s close and +28 bp from 9:30 am yesterday.

At 9:45 am May Chicago purchasing managers index, expected at 40.8 declined to 35.4 the lowest since 2020.

There isn’t any additional news today that will impact rates, the next major data is next Friday’s May employment release. Inflation isn’t increasing but equally not declining.

Source: TBWS

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