|At 8:30 July personal income and spending; income up 0.4% and spending up 0.3%, both as were expected. June income revised from +0.2% to +0.3%, June spending revised from +0.4% to +0.5%. Yellen’s favorite inflation reading, PCE, unchanged in July, the core though +0.1%. Yr/yr PCE +0.8% but the core +1.6%. Spending and income continue to reflect the Fed view that consumers are still spending and income increasing. There was no noticeable reaction to the better report.
At 9:30 the DJIA opened +75, NASDAQ +12, S&P +8. 10 yr 1.60% -2 bp. FNMA 3.0 30 yr coupon +8 bps from Friday’s close and -19 bps from 9:30 Friday.
This is a big week for data and Fed speakers, although the Fed speakers won’t have anything new to espouse and even if there is some new spin markets no longer pay too much attention. Employment leads the data parade but as you can see from the calendar there are a number of key reports. Markets continue to handicap when the Fed will actually put its money where its mouths have been. Yellen and other Fed policy makers (Yellen, Fischer and Wm. Dudley) are hanging by a thread, continuing to talk about a rate increase but walking away when it gets down to it. This time I suspect the Fed will increase rates in December, not in Sept. The Fed’s track record forecasting the economic outlook has been off the mark now for at least three years. Always seeing the sunshine then revising lower its forecasts.
Yellen’s speech last Friday pushed interest rate higher, most at the middle and short end of the curve; the 5 yr note yield increased 7 bps and the 2 yr up 6 bps. The 10 up 4bp and the 30 up 3 bps. Flattening of the curve as should be expected if short term rates are expected to increase. Friday the dollar strengthen against the yen, the euro and the dollar index increased; driven by Yellen. Still there are a number of Fed officials that don’t want an increase now, this is a bad movie that has no end and just keeps rewinding so we have to see it over and over and over.
Bank of Japan Governor Haruhiko Kuroda said on Saturday that “there is no doubt that there is ample space for additional easing in each of the three dimensions.” He was referring to negative interest rates, monetary-base guidance, and asset purchases. Kuroda went on to say, “The Bank of Japan will continue to carefully examine risks to activity and prices at each monetary policy meeting, and take additional monetary policy measures without hesitation.” The Bank of Japan will meet Sept 20th, the Fed’s FOMC meeting is Sept 20 and 21; in the meantime the ECB will meet on Sept 8th. ECB buying private debt recently n another effort to increase economic activity. Central banks around the world including the Fed are running economies; not doing well so far in Japan and Europe.
Beside all of the data this week leads to a short week next week for the Labor Day holiday that marks the end of summer for going to the Hamptons. Expect an early close on Friday.
This Week’s Calendar:
8:30 am July personal income and spending (as reported income +0.4%, spending +0.3%)
9:00 am June Case/Shiller home price index (+5.2%)
10:00 am August consumer confidence index (97.3 unchanged from July)
3:15 am Eric Rosengren Boston Fed
7:00 am weekly MBA mortgage applications
8:00 am Neel Kashkari Minneapolis Fed
8:15 am August ADP private jobs (+175K)
9:45 am August Chicago purchasing mgrs. index (55.2 from 55.8 in July)
10:00 am July pending home sales from NAR (+0.6%)
3:15 pm Charles Evans (Chicago Fed)
8:30 am weekly jobless claims (265K +4 K)
Q2 revisions of productivity and unit labor costs (productivity -0.6% from -0.5% on the initial report; unit labor costs +21.% from 2.0%)
10:00 am August ISM manufacturing index (52.2 from 52.6 in July)
July construction spending (+0.6% after -0.6% in June)
12:25 pm Loretta Mester Cleveland Fed
8:30 am August employment data (unemploy 4.8% unch from July; NFP jobs +175K, private jobs +179K, average hourly earnings +0.2%0
July trade balance (-$41.3B from -$44.5B in June)
10:00 am July factory orders (+2.0% from -1.5% in June)
1:00 pm early close for Labor Day
Jeffery Lacker Richmond Fed
PRICES @ 10:00 AM
10 yr note: +11/32 (34 bp) 1.60% -2 bp
5 yr note: +6/32 (18 bp) 1.20% -3 bp
2 Yr note: unch 0.84% unch
30 yr bond: +30/32 (94 bp) 2.25% -4 bp
Libor Rates: 1 mo 0.524%; 3 mo 0.833%; 6 mo 1.231%; 1 yr 1.536%
30 yr FNMA 3.0 Sept: @9:30 103.60 +8 bp (-19 bps from 9:30 Friday)
15 yr FNMA 3.0: @9:30 104.68 +9 bp (-10 bp from 9:30 Friday)
30 yr GNMA 3.0: @9:30 104.50 +10 bp (-15 bp from 9:30 Friday)
Dollar/Yen: 102.23 +0.40 yen
Dollar/Euro: $1.1169 -$0.0018
Gold: $1323.90 -$2.00
Crude Oil: $46.83 -$0.81
DJIA: 18,489.48 +94.08
NASDAQ: 5233.89 +14.97
S&P 500: 2178.91 +9.87