Yields climb as inflation remains elevated. Treasury yields rose in the aftermath of this morning’s PCE print, which landed largely in line with expectations but remained elevated above the Fed’s 2% target. Futures markets currently have a rate hike fully priced in by the December FOMC meeting. The 2-year yield closed 4 bps higher at 4.21%, while the 10-year yield closed 2 bps higher at 4.65%. Meanwhile, equities were nearly unchanged heading into Nvidia Corp.’s earnings this evening, with the S&P 500 and NASDAQ closing 0.02% and 0.08% lower, respectively.
Headline PCE lands slightly hot. PCE data, the Fed’s preferred inflation gauge, was released today, with the headline print showing a 3.7% gain YoY in July, just above the 3.6% forecast. On a monthly basis, the headline figure rose 0.2% versus expectations of a 0.1% increase. Core PCE, which strips out food and energy prices, landed in line with expectations of respective increases of 3.3% YoY and 0.2% MoM. While today’s print avoided a blowout, inflation remains well above the Fed’s 2% target. As Richard Moody, chief economist at Regions Financial Corp, stated, “Even if it doesn’t look like it’s set to accelerate further, neither does it look set to fall back to their target.”
Durable goods orders show surprising manufacturing strength. US durable goods orders rose 1.1% in July, well above expectations and the prior month’s 0.5% increase. Excluding transportation, orders rose 0.4%, slightly below forecasts of 0.6% but above the prior period’s upwardly revised figure. Core capital goods orders, which cover nondefense goods excluding aircraft, rose 0.2%, driven by primary metals and machinery. The figure, which serves as a proxy for business investment, was significantly softer than June’s upwardly revised 1.7% increase, likely attributable to volatile AI investment. Nonetheless, experts see today’s print as a signal of continued steady business investment, which remains a key engine of US economic growth.
