Last week closed with economic growth in the fourth quarter beating forecasts as gross domestic product increased 2.5 percent for the year. Importantly, the PCE Price Index, the inflation number that matters most to the Fed, rose 0.2 percent month-over-month, as did the core rate which excludes food and energy. Trends in annual inflation numbers continue to move lower and now sit at an almost three-year low, even with strong holiday spending. That report capped a year that began with economic “experts” warning the public of a guaranteed American recession, but inflation retreated at a much faster rate than the Fed anticipated, all while a robust job market kept driving consumer spending. The most recent data has led to more optimism that the economy can power through the Fed’s efforts to corral inflation.
This week is packed with market moving potential including the latest Federal Open Market Committee decision followed by Chair Powell’s press conference on Wednesday afternoon with the Quarterly Refunding announcement Wednesday morning. The December jobs report will be released on Friday where early estimates are for an increase of 178k in headline payrolls (versus 216k in December). Besides payrolls, the U.S. calendar includes updates on home prices, ADP employment, productivity / unit labor costs, manufacturing PMIs with factory orders and Michigan sentiment. Sweden’s Riksbank and the BoE will release their latest decisions on Wednesday and Thursday morning.
Today’s calendar sees just one data point, the non-market moving Dallas Fed Texas manufacturing for January, due out during the day. There are some short-duration Treasury auctions, and the Quarterly Refunding estimate will be announced. We begin the week with Agency MBS prices better by .125-.250, the 10-year yielding 4.10 after closing Friday at 4.16 percent, and the 2-year is at 4.33.
Commentary by Rob Chrisman.
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