Thursday – July 25, 2024
UMBS are up 11 bps in early trading. S&P Futures down 14 points.
The most problematic data this morning is in the quarterly GDP report (which includes a quarterly reading of the PCE price index where one of the months of the quarter is the same PCE data that will be reported tomorrow). That means a higher risk that June PCE prices are above expectations tomorrow, thus casting some doubt on the resounding inflation victory suggested by the June CPI data out 2 weeks ago.
Bonds had rallied sharply in the overnight session, mostly on the back of weaker econ data in Europe, but we’re giving up some gains after this data.
Jobless Claims = 235k vs 238k f’cast, [245k prev]
Despite reports that the labor market is softening, we aren’t seeing it yet in the official statistics.
Durable Goods = -6.6 vs 0.3 f’cast, [0.1 prev]
GDP = 2.8 vs 2.7 f’cast
Core PCE Prices Q/Q = 2.9 vs 2.7 f’cast
Nondefense ex-air Durable Goods = 1.0 vs 0.2 f’cast, [-0.9 prev]
Consumption = 2.3% vs 1.99%
Investment grew 8.4%
The housing recession continues, with another disappointing new home sales report. New home sales came in at 617,000, which was well below the Street estimate of 640,000. This was down slightly on a month-over-month basis and 7.4% on a year-over-year basis.
Today marked an uptick in the importance of economic data for the week and it had obvious consequences for volatility. Of particular importance was the higher reading in quarterly PCE prices. Because this is the first look at Q2 data, it’s one of 4 days each year where the PCE component of the GDP data offers a sneak peek at the full PCE report that comes out the following morning. the 2.9 vs 2.7 reading suggests there’s extra inflation that will be distributed between April, May, and June.
If June accounts for more than the other two months, tomorrow’s PCE index will be higher than expected, and thus bad for rates. That accounts for some weakness this morning, but traders are also in the midst of adjusting their yield curve positioning which has resulted in big discrepancies between longer and shorter term rates this week.
UMBS ended the day up 14 bps at 100.89