Yields nearly unchanged after Hormuz attack. Treasury yields fell 4-6 bps after this morning’s PCE data avoided a blow out and consumer spending came in stronger than expected. The move partially reversed over the session following news that Iran attacked a Singaporean ship in the Strait of Hormuz, triggering a jump in oil prices. The 2-year yield closed 2 bps lower at 4.12%, while the 10-year yield closed flat at 4.39%. Meanwhile, equities faced another choppy session as mega-caps sold off, with the S&P 500 and NASDAQ closing 0.01% and 0.46% lower, respectively.
PCE hits three year high. May PCE data released today, landing largely in line with expectations as headline PCE came in at 4.1% YoY, up from 3.8% in April and the highest reading since April 2023. Core PCE, which excludes food and energy, came in at 3.4% YoY, just above the prior month’s 3.3% and the highest level since October 2023. US inflation remains well above the Fed’s 2% target, though crude oil prices have retreated to pre-war levels following the US-Iran peace agreement. Gas prices, however, remain more than a dollar above pre-war levels, and relief will likely take time to flow through to the data. Joe Brusuelas, chief economist at RSM US, said “it is highly likely that inflation peaked in May,” but warned that underlying inflation “will not retreat so easily.”
Consumer spending rises at fastest pace in three years. Consumer spending in May increased 0.7%, the fastest pace in over three years, highlighting continued consumer resilience despite elevated prices due to the Iran war. On an inflation-adjusted basis, consumer spending climbed 0.3% after remaining flat in April. In recent months, tax refunds, an improving labor market, and gains in stock prices have helped to support consumers. Personal income, also rose 0.7%, as wages and salaries rose 0.4%, helping employees keep pace with inflation after pay increases have stalled in recent months.