Economic Data Stokes Recession Fears

Markets head to safety on U.S. economic concerns. This morning’s economic data rattled markets after it showed higher than expected core inflation in February, elevated inflation expectations, and weaker consumer sentiment. Treasury yields declined 6-11 bps across the curve and gold rose nearly 1% as investors rushed to safe haven assets. The 2-year yield (3.91%) fell ~4 bps on the week, and the short end of the curve is just a few basis points from its lowest levels since October. Meanwhile, equities plummeted, with the NASDAQ and S&P 500 down 2.70% and 1.97%, respectively.

Inflation rises and consumer sentiment falls. Core PCE, the Fed’s preferred inflation measurement, rose on both a monthly and yearly basis in February vs. expectations of no change from last month, while last month’s yearly measurement was revised upward. Notably, core monthly PCE logged a 4th consecutive increase, landing at 0.4%, the highest since last January. Following the inflation data, key University of Michigan consumer sentiment data saw the overall sentiment index fall from 57.9 in February to 57 in March vs. expectations of no change, while 1-year ahead inflation expectations climbed from 4.9% to 5.0%. Viewed together, the data drove heightened recessionary concerns, as rising costs coupled with a rapidly deteriorating consumer outlook could serve as a double punch to spending, a key economic driver

Week ahead. Next week’s slate will be headlined by March labor data, set for release on Friday. Markets are already concerned about trade wars and the potential for an economic slowdown, which would only be compounded if the labor market were to show further signs of cracking. The U.S. economy is expected to have added 135k jobs in March after February’s figure was lower than expected at 151k jobs added. Meanwhile, the unemployment rate is expected to remain at 4.1% after a surprise 0.1% increase in February.