Friday – July 26, 2024

UMBS opened the day up 14 bps, in the first hour of trading.

Perhaps it was the relatively low unrounded core m/m PCE figure (0.182 is a lot better than 0.249…. both would appear as “0.2” on the report).  Perhaps it was the lower incomes and outlays.  Or perhaps it was the fact that yesterday’s quarterly numbers adequately prepped traders for the possibility of a slightly higher figure (i.e. it caused some anticipatory weakness).  Either way, the bond market is easily shaking off the 0.2 vs 0.1 headline and paradoxically improving.

The move isn’t massive and it isn’t likely to become so, but simply avoiding losses after a higher-than-expected core PCE reading is a victory.

Core M/M PCE = 0.2 vs 0.1 f’cast,     [0.1 prev]

(unrounded = 0.182%)

Core Y/Y PCE = 2.6 vs 2.5 f’cast,     [2.6 prev]

Incomes = 0.2 vs 0.4 f’cast,    [0.4 prev]

Outlays = 0.3 vs 0.3 f’cast,     [0.4 prev]

For-sale inventory rose 36.7% YOY, according to Realtor.com. The number of active listings is the highest since the pandemic, however it is lower than pre-pandemic levels. So while a 37% increase sounds like a champagne-popping number, it really isn’t.

The first estimate for 24Q2 real GDP came in at a surprisingly strong 2.8% annualized rate, well above expectations of, at most, 2%, and well up from 1.4% in 24Q1. The result was due to rising inventories, strong consumer spending on goods, a rise in government spending, and weak residential construction. This reading is unlikely to alter expectations of no Fed rate change on 7/31 or a cut on 9/18.

While today’s monthly core PCE headline may have technically been higher than the median forecast, a vast majority of forecasters abstained from submitting updated guesses to data aggregators after yesterday’s quarterly PCE data.  Had they been compelled to do so, the forecast would almost certainly have risen to 0.2 from 0.1 and today’s unrounded number of 0.182 would be the logical beat that the market traded… logically.  In fact, one might call the 2 day action “boring” considering this morning’s quick PCE-driven rally almost perfectly offset yesterday’s PCE-driven sell-off and neither was very big in the bigger picture.

UMBS closed up 15 bps at 101.04