Stocks are lower and Mortgage Bonds are higher following a tame PCE Inflation Report.
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Trump and Powell's Face to Face Meeting
President Trump and Fed Chair Jerome Powell had their first face to face meeting since 2019, where based upon the terse statement the Fed released, was cordial but cold. Trump reiterated his stance that rates are too high and Powell says he did not discuss his expectations for monetary policy.
Personal Consumption Expenditures (PCE)
Within the PCE report, Personal Spending rose 0.2%, which was in line with expectations.
Incomes rose 0.8%, which was far stronger than the 0.3% expected. Contributing to this beat was a 6.9% rise in Social Security Payments.
The Fed’s favorite measure of inflation, PCE, showed that Headline inflation rose 0.1% in April and decreased to 2.1% from 2.3% year over year, which was lower than expectations of 2.2%
The Core rate, which strips out food and energy costs and is the Fed's main focus, was also up 0.1%, with year over year Core inflation falling from an upwardly revised 2.7% to 2.5%.
The trend of core inflation is improving. The year over year 12 month rate is 2.5%, but the 6 month run rate decreased to 2.6% from 2.9%, and the 3 month run rate is 2.7% from 3.5%.
Shelter is one of the biggest contributors to inflation and had a monthly reading of 0.35%, which is the one negative spot within the report. It’s continuing to be sticky at 4.23% year over year, which is higher than real-time readings of 3.2% from Zillow.
Pending Home Sales
Pending Home Sales, which measures signed contracts on existing homes, fell 6.3% in April, which was weaker than estimates. Sales are now down 2.5% year over year, which is worse than the -0.6% in the previous report.
News Next Week
Tuesday: JOLTS
Wednesday: ADP Employment Report, Mortgage Applications
Thursday: Initial Jobless Claims
Friday: BLS Jobs Report
Technical Analysis
After being stopped yesterday, Mortgage Bonds are once again challenging the dual ceiling comprised of the 25 and 100-day Moving Averages. We'll need to be on guard for a rejection lower, with support nearly 50bps lower at 100.43.
The 10-year is testing support at its 100-day Moving Average and is also vulnerable to a reversal in a wide range, with the next ceiling 18bps higher at the 4.588% Fibonacci Level.
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