Daily Market Color August 31, 2017Stocks, Treasurys Higher After Weak Inflation Data with Nonfarm Payrolls on Horizon The Commerce Department’s report on personal income and consumer spending for July headlined the economic data released today. Detailed in the report, Americans’ spending and wages grew at a healthy pace last month, while inflation, as expected, remained tepid. Consumer spending rose 0.3% (+0.4% expected) in July, the biggest monthly increase since April, while personal income climbed at its fastest pace since February at 0.4% (+0.3% expected). Inflationary statistics in the report showed continued softness as the PCE index, the Fed’s preferred measure of inflation, increased just 0.1% in July, yielding a 1.4% annualized rate. The core PCE index similarly climbed 0.1% MoM and 1.4% YoY, matching its lowest yearly pace since 2015, as inflation continues to remain below the Fed’s 2% target. Weekly initial jobless claims were also released this morning and provided another solid indication of labor market strength heading into tomorrow’s nonfarm payrolls report. For the week ended August 26th, the number of Americans applying for unemployment benefits for the first time increased by 1,000 to a seasonally adjusted 236,000 (238,000 expected). Initial jobless claims have now been under the 300,000-threshold (associated with a healthy labor force) for 130 straight weeks. Additionally, the four-week moving average of initial claims fell by 1,250 last week to 236,750. For the week ended August 19th, continuing claims fell by 12,000 to 1.942 million. Expectations for tomorrow’s employment report call for an addition of 180,000 jobs and for the unemployment rate to hold steady 4.3%. US stocks rose for a second consecutive day as a lack of renewed geopolitical tensions and fresh strong manufacturing data out of China bolstered the market’s tone. All three major US equity indices posted gains of 0.3%-1.0% for the session, again led by the tech-heavy Nasdaq. Treasurys held within a tight range as yields/swap rates edged 1-2bps lower across the curve. The yield on the 10-year note is poised to finish the month near 2.12%, more than 17 bps lower than where it ended in July. Gasoline futures surged higher, up nearly 14% on the day, with Harvey’s presence along the Gulf of Mexico coast continuing to hinder production at US refineries. WTI crude oil recovered a portion of this week’s losses, gaining 2.5% for the session moving back up to $47/barrel.
