Daily Market Color

U.S. Markets Tepid To Close Quarter Amid Mixed Consumer Data

US economic data reported on the final day of the quarter featured release of the personal-consumption expenditures price index, which showed a 0.1% MoM increase February.  Representing the Fed’s preferred inflation gauge, the YoY PCE index reached the central bank’s target at 2.1%, its highest level since March 2012.  The core PCE index, which excludes food and energy, similarly displayed its best gain since 2012 with a 1.8% increase from a year earlier (+0.2% MoM).  Today’s inflation readings were in line with the expectations of Fed Chair Janet Yellen, who earlier this month stated that “We expect core inflation to move up and overall inflation to stabilize around 2% over the next couple of years, in line with our longer-run objective.”  Those views were further confirmed by Federal Reserve Bank of New York President William Dudley (voter) this morning in his analysis that the FOMC’s forecast is in a “reasonable place,” warranting a couple more hikes this year.  Dudley went even further to explain that a shrinking of the Fed’s balance sheet towards the end of this year or in 2018 “wouldn’t surprise me.”

Also detailed in the report from the Commerce Department was a marginal rise in consumer spending during February, which was largely attributed to delays in income tax refunds.  Personal spending edged 0.1% higher for the month, slightly less than median forecasts of +0.2%, and when adjusted for inflation, spending declined 0.1%.  On the positive side, personal income growth matched expectations at +0.4% in February, just below the previous month’s revised level of +0.5%.  Other upbeat data on the day included the Chicago PMI and the University of Michigan’s consumer sentiment survey.  March’s Chicago PMI climbed to 57.7 and pushed this year’s first quarter average to 55.1, the highest level since Q3 2011.  Consumers’ views of the economy’s current conditions jumped to their highest level in more than eleven years with a reading of 113.2, foreshadowing a likely bump in personal spending figures for March.

Trading in US bond and equity markets has been relatively stable throughout today’s session.  All three major stock indices are trading close to unchanged on the day, with the DJIA and S&P 500 slightly lower while the Nasdaq is marginally higher.  Treasurys have maintained a steady rally as yields/swap rates are down 1-4 bps across the curve, bringing the 10-year yield close to 2.40%.  The US dollar is down 0.1% against major currencies, but saw significant gains against the South African rand after that nation’s Finance Minister, Pravin Gordhan, was officially replaced earlier today.  WTI crude oil held on to yesterday’s rally which was spurred on by the prospect of extending OPEC production cuts, settling near $50.75/barrel, capping its biggest weekly gain of the year. 

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