Bonds have been weak over the last month as various inflationary data have come in hotter than expected. CPI, PPI, the prices paid component of both the NY and Philly Fed, NFIB pricing expectations, and import prices. This morning’s PCE print was in-line with expectations running at 2.8% annualized y/y. Those more concerned about inflation will point to core services coming in a bit hotter than expected and the fact that PCE looks less disinflationary measured on a 3 month and 6 month basis than it had previously. Overall, the reaction in equities is slightly bullish as there were “whisper” estimates/fears of a higher number.   

PCE prints, despite being “the Fed’s favored measure”, tend to be less impactful than CPI because the CPI prints a couple weeks before the PCE every month. PCE is also largely a composite of other data that has already been made public such as CPI and PPI. It is the same reason why we always see far more focus on GDP than GDI: we get GDP far earlier than GDI.

Jobless claims remain historically low and show no sign of a bounce despite lots of headline about Tech layoffs in California. Continuing claims tell a somewhat weaker story coming in higher than expectations. The job market is tight, but static. Relatively few people are being laid off or quitting but it is taking longer for those out of a job to find new employment.

Consistent with what we have been saying for several quarters now: “sideways on the economy and inflation is good enough” for risk assets to remain in favor. The risk that we see to the market is a sharp rise in inflation that pushed the 10-year higher though 4.5% which would in turn weaken the housing market. Nothing in today’s data brings us closer to that risk.

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