Rates Rise as Inflation Continues to Cool

Positive earnings and economic data push equities higher, bonds lower. This year’s tech rebound continued today, with the NASDAQ 100 set for its fourth straight week of gains, the longest streak since August. The move came as positive outlooks from Tesla and Meta Platforms overshadowed pessimistic forecasts from Intel, Microsoft, and Texas Instruments. Furthermore, December’s core PCE easing and a positive University of Michigan sentiment outlook paved the way for stock gains and a bond selloff. Treasury yields rose 1-3bps across the curve throughout the trading session.

Inflation data remains elevated, but cooling. The headline personal-consumption expenditures (PCE) price index was in-line with analyst estimates of 5.0% growth in December compared to the year prior, slowing from +5.5% YoY in November. Eliminating energy and food prices, core PCE increased 4.4% on the year vs. +4.7% in November – a fifteen month low for the reading. Today’s inflation data supplemented the Commerce Department’s personal spending (-0.2% m/m) and personal income (+0.2% m/m) reports, both of which displayed declines from November’s readings and hinted at progress in the Fed’s attempt to slow the economy.  

Week ahead. The Fed will make their interest rate decision on Wednesday at 2 PM ET, where they are largely expected to hike rates by an additional 25 bps. Nonfarm payrolls and unemployment rate data will be released on Friday morning, with nonfarm payrolls expected to come in ~40k below last month’s level of 223k and the unemployment rate predicted to rise 0.1% to 3.6%.