Weak PCE, GDP Lead a Minor Rally

Rates little changed after soft U.S. data. Swap rates and UST yields grinded higher to end the day little changed after falling 7-9bps on weak GDP (2.1%), PCE (3.7%), and ADP employment (177k) data. Today’s data continued yesterday’s trend, which saw the Citigroup Economic Surprise Index fall below 50 (signifying negative data surprises in aggregate). The 2-year and 10-year yields fell ~1bp to 4.89% and 4.11%, respectively.

PCE, personal spending and income preview. Thursday’s PCE figures are generally expected to increase from June’s levels, which set multiyear lows. Headline YoY PCE is expected to rise to 3.3% from 3.0% in June, a level not seen since March 2021. Elsewhere, personal spending is forecasted to rise to 0.7% from 0.5% while personal income is expected to stay flat at 0.3%.

New legislation for regional banks. The FDIC has continued to propose tighter legislation for Category IV banks. Recently proposed legislation would require banks with $100B+ in assets to increase their usage of long-term debt as a funding source. Another rule would require banks with $50B+ in assets to detail plans for how the bank would be dissolved if it were to fail, a so called “living will.” The Fed has also voiced it’s support for tighter rules, Vice Chair for Supervision Michael Barr vowing to “improve the speed, force, and agility” of bank regulation.