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Inflation ran a bit hotter last month

Inflation ran a bit hotter last month but below the highs seen in February. There were some other bond friendly data points this morning – remember bonds like bad news.

The year-over-year Core PCE for June rose 4.8% from 4.7% in May above the 4.7% expected. Monthly it rose 0.6% versus 0.3% expected and from 0.3% in May. The annual Core PCE hit 5.3% in February. Personal Spending rose while incomes were unchanged.

The savings rates fell to 5.1%, a level last seen in 2008 … another tough economic time.

Final Consumer Sentiment for June came in at 51.5 versus 51.1 expected and up from 50 in June.

The inflation numbers actually pushed Mortgage Bond prices off their lows while the 10-year yield is 2.69%. Stocks are mixed.

On the recession front, don’t listen to the political talking points on both sides or the “economists” who lean either way – watch the bond market. The 10-year yield has declined sharply and the 2/10 yield curve inversion hit the widest levels in 22 years. This doesn’t happen when the economy is sound or the outlook is good. The bond market is saying that inflation has peaked and the Fed will need to do less and we could probably use some fiscal policy to help spark economic growth.

The Inflation Reduction Act is being debated in Congress. At first glance at the proposal, we see a tax and spend bill which does nothing to lower inflation. In fact, we see the opposite. Why? There is a lot of government subsidies that invariably push prices higher. The assumptions used on the revenue side are generous on the tax collection – so they will likely never happen. The biggest issue – the “energy security.” This is not defined, but it sounds like we won’t be reliant on fossil fuels, which could be a great someday – but that is not today. Meantime, oil still hovers at $100 a barrel making energy and daily essentials costs the main spending for consumers. There is nothing in the Act that changes this anytime soon. We would like to see more details on what this component of the Act as $369B is being set aside for “Energy Security and Climate Change.”

Next week investors, traders and the Fed will be closely watching the Jobs Report release for July. As mentioned, ADP’s next report will be at the end of August.

The Fed will purchase up to $151M FNMA 15-year 4% through 5% coupons today.

Technically, the benchmark FNMA 4.5% coupon is just below resistance two (R2) $101.58. Watch the Minute today as we jump into the technicals a bit. The 10-year yield is 2.68% with the 2-year still inverted at 2.89%.

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