Daily Market Color July 31, 2018Consumer Price Growth Slows, Wages Continue Steady Rise Inflation Softens Ahead of FOMC The Commerce Department’s report on personal income and consumer spending for June headlined today’s economic data reporting. Detailed in the report, both personal income and spending rose 0.4% last month, meeting expectations. In addition, personal spending was upwardly revised for the prior period from 0.2% to 0.5%. Also included in today’s report details, the savings rate was revised upward in May from 3.2% to 6.8% and in June the savings rate held steady at 6.8%. With the FOMC’s 2% inflation target, today’s Personal Consumption Expenditures (PCE) price index release gave the committee some real-time data to analyze at their FOMC meeting which began today and concludes tomorrow. The core PCE failed to meet the FOMC’s annual target of 2.0%, coming in at 1.9% and matching May’s downwardly revised figure. While the overall report was positive, the lack of increased spending and limited signs of robust inflation will likely reinforce the Fed’s current gradual pace of rate hikes. China and US to Re-engage on Trade? According to Bloomberg, there have been ongoing private conversations between representatives of Treasury Secretary Mnuchin and Vice Premier Liu He. While there has yet to be any agreement on the specifics of future formal talks, both sides have agreed that further discussion is warranted. This is welcome news to the financial markets, but does not seem likely to deter additional US tariffs on Chinese goods, as the US is set to impose duties as soon as Wednesday on as much as $16 billion in Chinese goods. The actual implementation of tariffs is set to take longer as US officials work to sort out the specifics. China is expected to retaliate with an equal amount of new tariffs on US goods. As the work to reboot the talks on trade continue, according to Bloomberg citing someone with knowledge of the talks, the US may back off of additional tariffs if China will agree to certain concessions. BOJ Fails to Appease Hawks The Bank of Japan concluded its two-day meeting today with the decision to leave its existing ultra-loose monetary policy unchanged. A couple items of significance revealed in the statement and press conference with BOJ Governor Haruhiko Kuroda afterwards included: Greater flexibility around the central bank’s 0% yield target on the 10-year JGB. The BOJ had previously maintained a +/- 0.1% range, but that has now been widened to +/- 0.2%. In offering forward looking guidance for the first time ever from the Kuroda-led BOJ, they declared the intention to keep Japanese rates lower for “an extended period of time,” in an effort to boost inflation. “We will likely have to continue monetary easing longer than expected, and we wanted to secure credibility for doing that by showing forward guidance,” Kuroda explained. Global bond yields declined following the announcement, as the overall message was a bit more dovish than markets had expected. Equities Finish Strong Month with Gain On the news of continued talks to restart trade negotiations with China, equity markets were able to close their best month since January with gains. All three major indices posted gains on the day, with the NASDAQ leading the way (+0.55%), ahead of the strong quarterly earnings report from Apple. The S&P 500 and DJIA also posted respectable gains of +0.49% each. US Treasurys traded in a tight range today, as rates stayed within about a 1 basis point range with the exception of the 30yr, which was 2.5bps lower in yield. The 10-year Treasury note closed the day at a yield near 2.96% (-1 bp). WTI crude futures settled 2.1% lower at $68.68/barrel. In foreign exchange markets, the USD Dollar (USD) rose 0.1% against both the British Pound (GBP) and the Euro (EUR).