Inflation ticks higher as consumer spending increases

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Published Date 4/30/2018

A lot of data this week; two major headlines, the FOMC meeting and April employment data.

Key data flowed at 8:30 am EST with March personal income, spending and inflation PCE; income +0.3%, spending +0.4%. PCE y/yr +2.0%; yr/yr core PCE +1.9%. The personal consumption expenditures are the focus of the Fed and the yr/yr core still under that infamous 2.0% central banks want. The reaction added a little support to the bond and mortgage markets. After the 10-yr traded at 2.97%, +1 bp before the data, its yield dipped to 2.95%. More news this morning from Germany with its inflation declining to 1.4%; in Italy, the third-largest economy, the inflation rate dropped more than forecast this month, while Portugal’s measure also fell. The EU national inflation reports come ahead of the euro-area number on Thursday, which economists forecast will come in at 1.3%.

The news this morning; T-Mobile and Sprint have agreed to merge, both providers looking to compete with Verizon and AT&T. It’s a $26B deal if the various government agencies eventually approve the merger. Both stocks traded a little lower this morning.

At 9:30 am the DJIA opened +130, NASDAQ +15, S&P +7. The 10 yr at 9:30 am was at 2.95%, -1 bp from Friday. Strong earnings and a string of mergers lifted spirits a little this morning, kicking off a busy week for inflation watchers.

At 9:45 am the April Chicago purchasing mgrs. index expected at 57.8, declined to 57.6; still strong and the fractional drop is meaningless to markets.

At 10:00 am March NAR pending home sales, expected +1.0% after +2.8% in Feb; revised from 3.1%; pending sales in March weak at +0.4%.

This week markets have many economic reports along with the FOMC meeting. The bellwether 10-yr note remained unchanged last week at 2.96% with MBS prices for the week +11 bps. No change in the wider sentiment that rates are going to move higher as the economy improves, wages increase, and consumer spending in Q2 also thought to increase after slowing in Q1.

No change last week for the 10-yr meant MBS prices were up just 11 bps with no change in the technically or fundamentally bearish outlook as well. With all of the key news this week it is unlikely that interest rates will improve. It will require dovish remarks in the FOMC policy statement (not likely) and/or weak employment news (also unlikely).

This Week’s Calendar:

Monday,

8:30 am March personal income and spending and PCE (income and spending were expected +0.4%, m/m PCE +0.1%, core PCE +0.2%; yr/yr PCE +2.0%, core yr/yr PCE +2.0%); As reported income +0.3%, spending +0.4%. PCE m/m 0.0%, yr/yr +2.0%; PCE core +0.2% m/m, yr/yr +1.9%)

9:45 am Chicago purchasing mgrs. index (expected at 57.8 from 57.4; as reported 57.6.)

10:00 am March NAR pending home sales (expected +1.0% from +3.1% in Feb; as reported +0.4%; Feb’s strong initial report was revised to 2.8%)

Tuesday,

10:00 am FOMC meeting begins

April ISM manufacturing index (58.7 from 59.3)

March construction spending (+0.5%)

Wednesday,

8:15 am April ADP private jobs (193K)

8:30 am Treasury quarterly refunding announcement

2:00 pm FOMC policy statement, no press conference.

Thursday,

8:30 am weekly jobless claims (224K from 209K last week)

March international trade balance (-$49.9B from -$57.6B)

Q1 productivity and unit labor costs (productivity +0.9%, unit labor costs +3.0%)

10:00 am April ISM non-manufacturing index (58.4 from 58.8)

March factory orders (+1.3%)

Friday,

8:30 am April BLS employment data (unemployed, 4.0% from 4.1%; NPF jobs +190K, private jobs +190K, manufacturing jobs +19K; average hourly earnings (+0.2%, yr/yr average earnings +2.7%)

Source: TBWS

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