Markets find relief as March PCE meets expectations

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Published Date 4/26/2024

Yesterday the release of the advance Q1 GDP sent rates up and MBS prices lower. Inflation measured by the price deflator increased 3.1% from +1.6% in Q4. Yields across the curve increased 6 bps, the 10 year note at 4.71% but lower than the initial reaction at 4.74%, the highest rate this year. This morning at 8:30 am the March PCE +0.3% month/month as expected, year/year +2.7% against estimates of 2.6%. The core month/month forecasts +0.3%, as reported +0.3%, year/year estimates +2.7% reported at +2.8% and unchanged from February. The initial reaction wasn’t much given the report matched forecasts, the 10 year note declined 3.bps to 4.68% by 9 am, MBS prices 7 bps better than yesterday.

Also at 8:30 am, March personal income and spending, income forecasts +0.5%, reported +0.5% and up from +0.3% in February; spending thought to be +0.6%, increased +0.8% equaling February spending.

Market reaction to the data was mute, no real movement, it has been a long time since the monthly PCE inflation data has come in right on forecasts and didn’t create volatility. After yesterday’s large movements the anticipation for more volatility was widely thought. The 10 year note after breaking its two-week trading range (4.65%/4.58%) increasing to 4.74% is back in its comfort zone. No increase in inflation but no decline, year/year core inflation still well above the Fed’s 2.0% that isn’t likely to occur anytime soon unless stocks roll over or some Black Swan event happens. The initial belief at the Fed when inflation began increasing was, it is a “transitory” issue, that isn’t what it has turned out to be. The economy remains strong, income increasing consumer spending holding well, unemployment rate at historic low.

At 9:30 am the DJIA opened -11, NASDAQ +186, S&P +28. 10 year note 467% -4 bps. FNMA 6.0 30 year coupon at 9:30 am +15 bps from yesterday’s close and +22 bps from 9:30 am yesterday.

At 10 am the University of Michigan April consumer sentiment index. Expected at 77.9, declined to 77.2. All components weaker.

Next Wednesday the FOMC meeting begins, after data yesterday and today the Fed is more likely to keep the FF rate where it is, and lowering rates is way down the line. Swap traders now betting on the first rate cut in December. The economy is strong, wages are increasing, unemployment low. The equity markets by enlarge still quite bullish. Firm economy, inflation above the Fed’s target, the picture isn’t one of rate cuts coming soon.

Source: TBWS

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