Markets are waiting on GDP and PCE data later this week

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Published Date 1/23/2023

After failing to crack 3.40% last week the 10 yr note began the session +5 bps at 3.52%. Stock indexes at 8:30 am ET a little better, MBS price at 8:30 am -17 bps.

Not much direct news this morning that traders are concerned with, each day closer to next week's FOMC when the Fed will increase the FF rate by 25 bps and likely talk about inflation slowing (not news, everyone knows it), and 25 bps is already discounted in present rate levels. More job cuts from tech companies, Spotify today cutting 6.0% of its workforce (600 jobs); not many compared to the 10s of thousand cuts already announced. Not sure of the total but guessing, 80K job cuts in total.

Finally, Fed officials taking a break before the FOMC meeting next week. This week’s key economic data doesn’t hit until Thursday and Friday, in the meantime it’s a trader’s market. The key 10 yr, as we noted over a week ago, found key support at 3.40% testing it last week three times.

The Fed may be taking a break, but big firms have opinions to share; Morgan Stanley strategist Michael Wilson commenting. One of the most vocal bears on US stocks worrying that present levels of stocks are not paying attention to the current economic data that reflects the slowing economy. Recent optimism around a less hawkish Federal Reserve, China reopening and a weaker dollar is already priced into share prices, he wrote in a note. Wilson ranked No. 1 in last year’s Institutional Investor survey.

At 9:30 am the DJIA opened +43, NASDAQ +26, S&P +4. 10 yr at 9:30 am 3.53% +5 bps. FNMA 5.5 30 yr coupon at 9:30 am -12 bps from Friday’s close and -10 bps from 9:30 am Friday.

Dec leading economic indicators at 10 am expected -0.7% but slipped just 0.1%.

All data this week is on Thursday and Friday. Not expecting major changes this week, at least until Thursday, and even then, not much reason to believe the 10 yr note will breach 3.40%. The next resistance for the 10 yr 3.60%. Until FOMC next Wednesday market focus will be on bets on what the FOMC and Powell will say about the future. It is nice no Fed officials will have anything to say until then. The key report this week hits on Friday with the next inflation report, the Dec PCE.

This Week’s Economic Calendar:

• Monday,

10 am Dec leading indicators (-0.7%, as reported -0.1%)

• Tuesday,

9:45 am Jan Flash manufacturing index (46.5 services +45.5)

10 am Jan Richmond Fed manufacturing index (-3 from +1)

1 pm $42B 2 yr note auction

• Wednesday,

7 am weekly MBA mortgage apps

1 pm $43B 5 yr note auction

• Thursday,

8:30 am weekly jobless claims (202K from 190K)

Q1 advance GDP ( +2.7% from Q4 3.2%; personal consumption expenditures +2.6% from Q4 2.3%)

Dec Durable goods orders (+2.8%, ex transportation -0.2%, core capital goods -0.2%)

Dec advance US trade deficit (-$88.5B)

10 am Dec new home sales (614K from 640K in Nov)

1 pm $35B 7 yr note auction

• Friday,

8:30 am personal income and spending (income +0.2%, personal consumption-0.1%; PCE index m/m 0.0% from +0.1%, yr/yr 5.0% from 5.5%; core PCE +0.3% m/m and +4.4% yr/yr from 4.7% yr/r)

10 am U. of Michigan consumer sentiment index (64.6 unch from mid-month)

Dec Pending home sales (-1.0%)

Source: TBWS

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