As we approach the holiday season, the financial market offers a blend of optimism and caution, with recent inflation data and housing market insights shaping the narrative.
Inflation Data: PCE Report Brings Holiday Cheer
Today’s headline is the Fed’s favorite inflation measure – the Personal Consumption Expenditures (PCE). The PCE report delivered a pleasant surprise, aligning closely with the Federal Reserve’s target. Despite initial lukewarm market reactions, the bond market is showing signs of a rally, with mortgage-backed securities hovering below 3.9%.
The year-over-year headline inflation, including food and energy, dropped to 2.6%, beating the market expectation of 2.8%.
More crucially, the core PCE, which excludes food and energy, rose by 0.1%, with the year-over-year figure now at 3.2%, edging closer to the Fed’s 2% target.
Economic Insights: GDP, Durable Goods, and Housing Data
GDP Revision: The Q3 GDP was revised from 5.2% to 4.9%, indicating solid yet moderate economic growth.
Durable Goods Orders: These increased by 5.4% from last month, though this number can be volatile due to large aircraft orders.
New Home Sales: This data showed a significant miss, with sales down 12% month-over-month, yet the sales mix suggests more expensive homes are driving the median price up.
Jobless Claims and Consumer Confidence
Jobless Claims slightly increased to 205,000, indicating a stable labor market. The consumer confidence is surprisingly strong, potentially erasing some gains from the lower inflation data. The University of Michigan’s consumer sentiment index showed an uptick in both current conditions and future expectations.
Housing Market: A Mixed Bag
Realtor Confidence Index: Showing signs of optimism, with expectations of increased buyer and seller traffic.
New Home Sales: A decrease in sales, but the type of homes sold influences the median price, not necessarily indicating a drop in home values.
Market Trends: MBS and Treasury Yields
Mortgage-Backed Securities: There are slight fluctuations today, but the overall trend remains favorable for lower yields.
10-Year Treasury Yield: Continuing its downward trajectory, now at 3.84%, with potential to reach around 3.76-3.80%.
As we wrap up this week, the financial market presents a picture of cautious optimism. With favorable inflation data, a steady housing market, and resilient consumer confidence, the stage is set for a potentially brighter economic outlook as we head into the new year.
