Good morning! Today’s market is slightly down, reacting to the latest Personal Consumption Expenditures (PCE) data. While the core PCE, closely monitored by the Federal Reserve, showed a positive trend (down to 0.17% month-over-month), the market’s response was muted due to increased spending figures.
GDP and PCE Analysis
The GDP’s robust performance, with a 3.3% increase, indicates economic vitality. However, the core PCE, crucial for the Fed’s inflation target, is inching closer to the desired 2%. Currently, it’s under 3%, a significant improvement from the last report’s 3.16%. The shelter component is a key factor here, with actual rents rising 2.7% year-over-year but lagging in CPI and PCE measurements.
Banking and Inflation
The Bank Term Funding Program (BTFP) is expiring, impacting banks’ borrowing against devalued securities. This situation reflects the broader economic narrative, where inflationary trends and Fed policies are pivotal.
Housing Market: Sales and Prices
The housing market is showing resilience. New home sales for December increased, but the median home price decreased, which can be attributed to the sale of lower-priced homes. Inventory levels have risen slightly, yet the market’s demand remains robust, evidenced by an 8.3% month-over-month increase in pending home sales.
Spending and Income Discrepancy
Spending in December outpaced income growth, leading to a decrease in the savings rate to 3.7%. This could signal a reduction in excess consumer funds and slower spending in the future.
Looking Ahead: Federal Reserve Meeting and Market Forecasts
– Next week is significant with the Federal Reserve meeting and new home appreciation data.
– Forecasts from the Mortgage Bankers Association predict a 19% increase in monthly real estate sales in 2023.
– Loan performance insights show a slight uptick in delinquencies, a metric to watch closely.
Technical Analysis: MBS and Treasury Yields
MBS are up, with the 50-day moving average providing support. There’s potential for a 15-16 basis point rise in the short term. The 10-year Treasury yield remains at 4.15%, and its movement will be crucial in the coming days.
The market remains cautiously optimistic as we digest the PCE data and its implications for the Fed’s monetary policy. Housing market trends and spending patterns will be key factors in shaping future market movements.
