Core PCE Elevated in July, Nonfarm Payrolls Up Next

Yields steady despite surprises in core PCE, jobless claims. Despite a busy calendar and updated inflation data today, yields closed nearly flat. Higher than expected core PCE was less of a shock after yesterday’s QoQ core PCE data was 0.2% above estimates, while stronger than expected jobless claims data also had a negligible impact. As such, yields traded within a 4 bp range for most of the session. The 2-year yield ended 1 bp higher at 3.96%, and the 10-year yield was flat at 4.37%. Markets are now looking ahead to tomorrow’s nonfarm payrolls, where the U.S. is expected to have added 104k jobs in July versus 147k added in June.

June PCE data shows inflation ticking up. Personal Consumption Expenditure, the Fed’s favored inflation indicator, landed at 2.6% YoY in June. This was up from 2.4% in May and above estimates of 2.5%. Core PCE, which excludes food and energy, came in at 0.3% MoM, up from 0.2% in May and the largest increase since February. The numbers support yesterday’s Fed’s decision to hold rates steady, with Chair Powell pointing to uncertain inflationary impacts from President Trump’s tariff policy. Today’s numbers indicate that recent trade policy decisions have likely caused some inflationary effect, though the full impact remains to be seen.

Trump announces several new tariffs. President Trump announced a 15% tariff on South Korean imports on Wednesday alongside a 25% levy on Indian imports. Trump cited India’s relationship with Russia as a key factor in his decision. He also introduced a 50% tariff on semi-finished copper products but excluded refined copper, the form primarily traded on exchanges. This caused Comex copper futures to drop by over 20% as traders had previously priced in levies on refined copper. With Trump’s deadline just one day away, only ten countries have announced trade deals with the U.S. Mexico and China deals remain crucial, and the former reached an agreement today for a 90-day extension while the latter is still negotiating for an extension ahead of its August 12th deadline.