A rare green morning for MBS.  Opened up 21 bps.  S&P Futures down 21.75

Not only are there no whammies in this morning’s data, but the downward revision to the quarterly PCE data is further evidence that the first part of 2024 may have been an outlier in terms of the pace of inflation.

Jobless Claims = 219k vs 218k f’cast,         [216k prev]

Core PCE Q/Q = 3.6 vs 3.7 previously

GDP, Q1 1st revision =  1.3 vs 1.3 initial

Personal consumption expenditures was revised downward from 2.2% to 2.0%.

The Fed released its latest Beige Book, which is a general survey of business conditions in each of the districts. Overall, the economy is expanding at a modest pace, and we are starting to see evidence of a slowing economy. The consumer appears to be tapped out, as discretionary spending drops and demand for non-profits and community organizations grows. Overall, the outlook from businesses is becoming more pessimistic and attuned to downside risks.

On inflation, the report said: “Prices increased at a modest pace over the reporting period. Contacts in most Districts noted consumers pushed back against additional price increases, which led to smaller profit margins as input prices rose on average. Retail contacts reported offering discounts to entice customers.

Despite higher premiums, reduced coverage, higher deductibles, and leaving entire states, over the last decade insurers paid more in homeowners insurance claims than they collected in premiums. Recently, this has been meaningfully exacerbated by rising reinsurance rates that insurers pay for insurance. To wit, in 2023 insurers lost money on homeowners’ coverage in 18 states, well up from eight states in 2013 and 2014 and 12 in 2017 and 2018.

New York Fed president John Williams gave a speech at the Economic Club of New York earlier today. He did not stray very far from his recent public statements regarding inflation, the economy and monetary policy, but it’s always of interest to hear what he says. Outside of the Fed Chair, the president of the New York branch has always been one of the most influential FOMC members.

The quarterly vs monthly PCE reports are potential sources of confusion for rate watchers.  To be fair, only the monthly version is a dedicated report.  The quarterly version is simply the sum of the 3 monthly reports + revisions, presented with the GDP release and revisions.  That’s the one that came out this morning, showing that Jan-Mar inflation was another 0.1% lower than initially reported.  Does that have a bearing on tomorrow’s dedicated monthly PCE numbers?  Not this time…  While that was the case last month (because the monthly report was for March… one of the months in Q1), tomorrow’s PCE inflation data is for April.  Thus, it is more interesting and more timely.  If today’s stale update was worth a modest rally, it’s a clue as to Friday’s potential volatility in the event of another deviation from expectations.

UMBS closed up 30 bps at 99.99

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