No Surprises Within Inflation Data

 

Inflation Holds Steady at Fed Target

The Commerce Department’s report on personal income and consumer spending for August headlined today’s economic data releases.  Detailed in the report, consumer spending rose a steady 0.3% (matching expectations), as declines in automobile purchases were more than offset by healthcare outlays.  Separately, personal income climbed 0.3% for a second consecutive month, slightly below median forecasts of +0.4%.  Consumer price data within the report fell mostly in line with comments from Fed Chair Jerome Powell, who after Wednesday’s decision presented the FOMC’s expectation that inflation wouldn’t surprise to the upside.  The core PCE price index (Fed’s preferred inflation measure) was unchanged in August after rising 0.2% in July.  Compared to a year earlier, the gauge of core prices climbed 2.0% — matching the Fed’s inflation target.

 

 

Risk Assets Range-bound

Major US stock indices were mostly flat in the final trading session of the week, as the utilities sector was able to balance out large losses in shares of Facebook (-2.6%) after the social media reported a massive security breach.  Overall, the S&P 500 posted its strongest quarter since 2013, rising 7.2% despite the ongoing trade concerns with China and Canada.  In Q4, financial markets will also be tasked with navigating the potential implications of mid-term elections.

 

 

US Treasurys were also largely unchanged on the day.  However, the month of August saw a steady rise in yields/swap rates, as short-term rates touched their highest levels in more than a decade.  The yield on the 10-year note finished the day near 3.06%, roughly 20bps higher than its level to open the month.  The US dollar continued its appreciation against major currencies (+0.2%), rising for a second consecutive trading session following the Fed’s monetary policy decision.

 

 

Canada Out in the Cold…For Now

The deadline for an inclusion of Canada in the trade agreement with Mexico will pass tonight, and there are currently no signs of progress in negotiations with our neighbor to the north.  The US-imposed deadline circles around the rule that the full text of a trade agreement must be made public for 60 days before an American president can sign.  In this particular scenario, Mexican President Enrique Pena Nieto will be leaving office at the end of the November (60 days), and any delays to the publishing of the text would place the signing of the pact beyond such time.  The president-elect of Mexico has already announced his preference to include Canada in the trade pact – a similar stance to most US Democratic lawmakers.