Daily Market Color

Overbought Treasurys Sink Even as Inflation Slowdown Continues

Rates jump higher despite slow inflation data. Swap rates and Treasury yields climbed 5-9bps across the curve despite data that showed weak PCE, consumer spending, and a looser labor market. The deflationary progress was shared overseas, as euro-zone inflation came in lower than expected at 2.4% from November 2022. Though the data supports earlier Fed rate cuts, swap rates reversed course on bets that the 30bp drop since the beginning of the week was excessive. Meanwhile, oil fell after a long-awaited OPEC+ meeting saw promises for production cuts. 

2/10 Year UST (United States Treasury) Yield History. Source: Bloomberg

OPEC+ meeting promises additional crude production cuts, but adherence is in question. OPEC+ agreed to an additional 900,000 barrel per day production cutback at their meeting today, which was previously delayed due to disagreements from some African nations. The extra cuts aim to support oil prices, which have declined over the past 2 months due to surpluses and weaker demand outlooks. Traders reacted with skepticism to the announcement; the cuts are voluntary, and markets are unsure if all OPEC+ members will fully comply. After the meeting, Angola announced that it would reject the new quotas and pump at current levels. WTI crude ended down at ~$76 per barrel on the day, and Brent Crude was down to ~$83.

WTI (West Texas Intermediate) Crude Oil Futures Price. Source: Bloomberg

Today’s data shows slowing inflation, consumer spending and a weaker labor market. PCE declined across the board in October and came in at 0.0% MoM (headline), a sign of progress following October’s 0.0% CPI print. Core MoM PCE was 0.2% in October, which (annualized) remains above the Fed’s 2% goal but fell from 0.3% in September. The Fed’s goal for a looser labor market also saw progress, as initial jobless claims and continuing unemployment claims rose from last week. However, economic resilience was tested, as personal income and spending were 0.2% in October, a 0.1% and 0.5% decline from September, respectively.

U.S. PCE (Personal Consumption Expenditures Price Index) History. Source: Bloomberg

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