Markets will be focused on PCE and GDP this week

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Published Date 1/22/2024

Last week the 10 year note +19 bps, 2 year +22 bps. The news coming out of Davos last week cooled the increasing view the Fed and other key central banks were preparing to lower rates as early as March with some wild speculation the Fed may cut rates six times this year. Every comment from a central banker including Fed officials took wind out of those “sure” beliefs, pushing rates higher. This morning with little news over the weekend rates began better, at 8:30 am ET the 10 year note yield was down 5 bps to 4.08%, the 2 year note however was unchanged early. That the 2 didn’t improve, the most sensitive to rate cuts, suggests the mood remains cautious after all the comments last week from central bankers.

This week all the key data comes on Thursday and Friday, not much between now and then except Treasury auctions. There was very little news over the weekend.

At 9:30 am the DJIA opened stronger after the S&P 500 index finally made a new high from two years ago after struggling for the last two weeks. The DJIA opened +87, NASDAQ +81, S&P +16. 10 year at 9:30 am 4.09% -4 bps. FNMA 6.0 30 year coupon at 9:30 am +12 bps from Friday’s close and +9 bp from 9:30 am Friday.

The next key inflation report is Friday with Powell’s favorite, personal consumption expenditures (PCE) the focus on the core (ex-food and energy) month/month expected +0.2% from +0.1% in November but year/year +3.0% down from 3.2%. The consensus that the US economy will at worst see a soft landing with some expecting growth to continue, equity markets in the US bullish while in China its economy is faltering. The Middle East tensions still out there but markets don’t believe President Biden will take any significant action.

The only data today, and it isn’t a market-moving report, at 10 am December leading economic indicators, expected at -0.3%, reported at -0.1% from -0.5% in November.

Expecting a tight trading range until Thursday and Friday data is released. Financial markets presently focused on what the Fed may do at the March FOMC meeting, in the meantime the FOMC meeting next Tuesday and Wednesday. No comments from Fed officials this week, the self-imposed silence a week prior to a FOMC meeting. Looking for the 10 year note and MBS prices to remain close to the current levels through the rest of the day.

This Week’s Economic Calendar:

Monday,

10 am December leading economic indicators (-0.3%, as reported -0.1%)

Tuesday,

1 pm $60B 2 year note auction

Wednesday,

7 am weekly MBA mortgage applications

1 pm $61B 5 year note auction

Thursday,

8:30 am weekly jobless claims 200K from 187K)

Advance Q4 GDP (+2.0% from +4.9% in Q3 2023)

December durable goods orders (+1.0%, ex transportation orders +0.2%, core capital goods -0.2%)

December US trade deficit (-$88.5B)

10 am December new home sales (650K from 590K)

1 pm $41B 7 year note auction

Friday,

8:30 am personal income and spending (income +0.3%, spending +0.4%)

PCE month/month inflation +0.2% from -0.1%, year/year +2.7% from 2.6%); core PCE month/month +0.2% from +0.1%, year/year +3.0% from 3.2%)

10 am December pending home sales (+1.3% from 0.0% in November)

Source: TBWS

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