MBS up 23 bps on the morning

With ECI being a report that Powell increasingly mentions by name and PCE being the Fed’s go-to big picture inflation index, there was at least something at stake this morning. With both coming in just a hair better than forecasts, bonds have managed to hold overnight gains.

Employment Cost Index was 1.0 on a 1.1 forecast. 1.2 prev

Core PCE came in at 0.2 on a 0.2 estimate MoM. 4.1 vs 4.2 for YoY

Lower energy prices (they fell 19% YOY) pushed down the headline number to 3%, but the ex-food and energy number is still elevated. June 2022 was the peak of the housing market, and that will help to push down the monthly numbers going forward.

Global bond yields shot higher overnight after the Bank of Japan tweaked the language in its policy statement which hinted at policy normalization. This caused the yield on the Japanese Government Bond to shoot higher by 11 basis points (from 0.44% to 0.55%) which caused global bond yields to spike higher. As a general rule, global government bonds do correlate with each other, so this pushed yields higher.

Personal Incomes rose 0.3% month-over-month in June, according to BEA. Personal consumption rose 0.5%. The PCE Price Index, which is the Fed’s preferred measure of inflation, rose 0.2% month-over-month and 3% year-over-year. Excluding food and energy, it rose 0.2% MOM and 4.1% YOY.

Yesterday, the Dow Jones Industrials Average rose for the 13th day in a row. The last time that occurred was on 1/20/87, almost 40 years ago. Had the Dow Jones risen today it would have been the 14th day in a row and that would have been the longest streak since June 1897. Alas, it declined by 0.67% and the market must now work on a new streak.

Apartment List showed national rents rose 0.3% in July.  Now down 0.7% YoY.  Flat previously.  Vacancies increased from 7% to 7.3%.

Friday ended up being a slightly stronger session for bonds, but not in any impressive way.  Moreover, it wasn’t remotely strong enough to undo the damage seen yesterday.  The overall takeaway is that it is strong economic data more than anything that is keeping the upward pressure on rates right now.  Things may have looked completely different had we not seen lower jobless claims and higher GDP on Thursday.  The other takeaway is that it’s not just inflation data that matters.  In fact, it’s telling that Friday’s PCE and ECI data (both inflation-focused) argued for a rally, but bonds mostly lost ground after the data came out.

MBS ended day up 36 bps.  Stocks gained 45 points