Markets open end of year gift with November PCE

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Published Date 12/22/2023

At 8:30 am ET the anticipated inflation report, the November personal consumption expenditures (PCE). The news was good. The month/month PCE expected -0.1% as was expected and down from 0.0% in October, year/year 2.6% with forecasts of 2.9% and down from 3.0% in October. The core, the more critical, month/month +0.1% with estimates at +0.2% and unchanged from October, year/year +3.2% against forecasts of +3.4% and down from 3.5% in October.

At 8:30 am November personal income +0.4% as thought, November personal spending were a little less at +0.2% with forecasts of +0.3%.

At 8:30 am November durable goods orders expected +2.4% increased 5.4%, when transportation orders are subtracted +0.5% against +0.2%. Core capital goods increased 0.8% compared to +0.1% anticipated.

Prior to the three data points the 10 year note was up 4 bps from yesterday’s close; the initial reaction brought the note back to unchanged from yesterday. PCE declined for the first time since 2020 and fortified the outlook the Fed is done with hikes and supports the view rate cuts are likely to begin next spring. Last week the Fed’s quarterly projection released at the FOMC meeting predicted the core rate of PCE inflation will slow to 2.4% by the end of next year, within sight of its 2% target. Bloomberg Economics is saying that on a six-month annualized basis, core PCE likely advanced just 2% — right at the Fed’s target. How quickly inflation falls depends on what the economy does, most presently are thinking a slowdown in growth is possible.

By 9 am the three stock indexes were slightly lower than yesterday’s volatile trading. The rate markets improved but at 9 am the 10 year note was just unchanged from yesterday. The decline in inflation wasn’t as volatile as in past inflation reports.

At 9:30 am the DJIA opened -23, NASDAQ +52, S&P +14. 10 year at 9:30 am 3.86% -3 bps, FNMA 6.0 30 year coupon at 9:30 am +4 bps from yesterday’s close and -1 bp from 9:30 am yesterday.

Fitch Ratings said yesterday the housing market is overvalued in 88% of U.S. large metropolitan areas, according to a new report. The ratings agency said Wednesday that housing was overvalued by 9.4%, nationally, in the second quarter of 2023. The agency said it expects prices to remain elevated, with prices having climbed further in the third quarter.

At 10 am two more data points to round out the day. November new home sales expected at 690K from 679K, sales reported 590K and October revised to 672K. The final December University of Michigan consumer sentiment index expected unchanged from two weeks ago at 69.4, it increased to 69.7. Both consumer confidence and now consumer sentiment were much stronger than thought.

The bond markets will close at 2 pm today, stocks go the normal session until 4 pm. By noon today traders in rate markets will mostly be gone for the three-day weekend. Next week the economic calendar is soft with not much scheduled, weekly jobless claims and November pending home sales are the only major data point. There isn’t anything scheduled for next Friday, so what we have is essentially a three-day week (Tuesday thru Thursday) the markets will be open on Friday though. In the absence of any geo-political news next week won’t see many changes.

Source: TBWS

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