Markets focused on inflation data

Published Date 7/29/2022

At 8:30 am ET June personal income and spending were better than estimates; income up 0.6% on expectations of +0.5%, spending expected +0.9% increased 1.1%. The Fed’s inflation data, PCE stronger than thought. June PCE estimated at +0.9% increased 1.0% m/m and yr./yr. +6.8% against 6.7% expecte4d. The core PCE expected at +0.5% increased 0.6% m/m, yr./yr. +4.8% against forecasts of 4.7%. There was no initial reaction to the stronger inflation reads; the 10 was at 2.71% +3 bps before and didn’t move. MBS prices began this morning down 20 bps but by 8:45 am down just 14 bps from yesterday’s close.

Also, at 8:30 am Q2 employment cost index was expected to be up 1.1%, as reported +1.3%. Yr./yr. expected +4.6% increased 5.1%, a fresh record, in data back to the early 2000s. The increase heightens concerns that inflation will remain persistently high and prompt even more aggressive action from the Federal Reserve. Taken with the PCE increase and it begs the question about the continuing inflation increases. Powell got two key inflation points today. In a press conference Wednesday following the central bank’s decision to raise interest rates by another 75 basis points, he said the ECI index is “a very important one because it adjusts for composition” of employment. The Atlanta Fed’s wage growth tracker climbed 6.7% in June from a year earlier — the most in data back to 1997. Wages are increasing but inflation eats up almost every bit of higher wages for most Americans.

  • Eurozone’s Q2 flash GDP expanded 0.7% qtr./qtr. (expected 0.2%; last 0.6%), growing 4.0% yr./yr. (expected 3.4%; last 5.4%)
  • Germany’s Q2 flash GDP was unchanged qtr./qtr. (expected 0.1%; last 0.8%) and up 1.5% yr./yr. (expected 1.8%; last 3.9%)
  • France’s Q2 flash GDP expanded 0.5% qtr./qtr. (expected 0.2%; last -0.2%), growing 4.2% yr./yr. (expected 3.7%; last 4.8%)
  • Italy’s Q2 flash GDP expanded 1.0% qtr./qtr. (expected 0.3%; last 0.1%), growing 4.6% yr./yr. (expected 3.7%; last 6.2%)
  • Spain’s Q2 flash GDP expanded 1.1% qtr./qtr. (expected 0.4%; last 0.2%), growing 6.3% yr./yr. (expected 5.5%; last 6.3%)

At 9:30 am the DJIA opened +26, NASDAQ +72, S&P +15. 10 yr. 2.71% +3 bp. FNMA 4.5 30 yr. coupon at 9:30 am -8 bps from yesterday’s close and +4 bp from 9:30 am yesterday. .

At 9:45 am the July Chicago purchasing mgrs. index expected at 56.0 unchanged from June, the index dropped to 52.1.

At 10 am the final July U. of Michigan consumer sentiment index was expected unchanged from mid-month at 51.1, the index increased to 51.5.

Yesterday Janet Yellen spoke up with her assessment; acknowledging a slowdown she called necessary to tame inflation while rejecting the notion the country had entered a recession.

Next week is employment week for July. The following week the next inflation reports with CPI and PPI (Aug 10th and Aug 11th).

Source: TBWS

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