Treasurys Rise, Dollar Falls Following Soft Consumer Price Data

Today’s economic data releases began with lackluster personal income and outlays reports.  As per the Commerce Department, consumer spending edged 0.1% higher during June, matching expectations albeit slightly below May’s upwardly revised 0.2% gain.  Personal income was unchanged for the month, failing to increase for the first time since November 2016.  Much of the weakness in household income growth was attributed to a decrease in dividend income, which fell 3% in June after rising 4.8% in the previous month.  The headline personal consumption expenditures (PCE) index was similarly flat in June, while the core PCE index, the Fed’s preferred measure of inflation, mustered a 0.1% rise for the second consecutive month.  Compared to a year earlier, the core PCE price index increased 1.5%, again below the FOMC’s target inflation level of 2%.  Also noted in the report, the personal-savings rate averaged 3.8%, down 0.1% MoM and 1.3% YoY.  In the manufacturing sector, the Institute for Supply Management released its index measuring factory activity for the month of July.  At a reading of 56.3, manufacturing activity remained robust last month as persistent strength in new orders (60.4) contributed to the ISM’s index remaining above 50, the level indicative of expansion, for the 11th straight month.

 

 

US Treasurys rallied from the onset of the trading session after the soft inflation data released this morning casted further doubt on the Fed’s plans for another interest rate hike before yearend.  Treasury yields/swap rates are currently down 1-5 bps across the curve in a bull flattening pattern, with the yield on the 10-year note down 4 bps to 2.25%.  The US dollar continued its struggles amid the political uncertainty both inside the White House and abroad, falling 0.1% against major currencies to a reach a fresh 15-month low.  All three major stock indices trended higher towards new record levels as robust corporate earnings continue to push valuations higher.  Crude oil futures shed 1.75% on the day, ending a six-day rally which saw a barrel of WTI reach above $50.  While further clarity on US crude inventories will be provided tomorrow via a report from the EIA, the effectiveness of the OPEC production-curtailment agreement remains in doubt for energy investors.