Rates Flat-Personal Income and Spending Dip

Yesterday the bellwether 10-yr note closed above the key near term support at 2.70% ending at 2.72%. We have been pointing out the technical significance to the 2.70% level that has held any selling for over a month. This now suggests the 10 yr will increase to 2.82% and push mortgage rates slightly higher.

At 8:30 am ET January personal income was expected to add +0.3%. As reported it dropped -0.1%, the first time in more than three years. This is another report skewed by the shutdown. Today's report combines all of December's data with only January's income data. The rest of the month's data is delayed because of the government shutdown. In December income increased by 1.0%. Spending data for December show a 0.5% drop with durables and nondurables both at minus 1.9% and services also unusually low, at only a 0.1% gain. Consumers apparently put the money they didn't spend into the bank as December's savings rate spiked 1.5 percentage points to 7.6%. Core PCE prices increased 0.2% for a second straight month in December with the year-on-year rate also unchanged for a second straight month, at 1.9%. Overall PCE prices increased by 0.1%. In December year-on-year is showing only 1.7%, down 0.1% from November. The only January data was income, so most of the data is old news but still reflects little concern about inflation. No reaction to the mostly old data.

At 9:30 am the DJIA opened up +190, the NASDAQ added +55, and the S&P gained +20. The 10-yr note was at 2.74%, up +2 bp.

10:00 am revealed two data points; February ISM manufacturing index expected at 55.0 from 56.6 and the University of Michigan consumer sentiment index expected at 95.7 from 95.5 at mid-month. The ISM index was lower at 54.2. And the University of Michigan sentiment index fell to 54.2.

Now looking toward next week; Bloomberg is reporting U.S. officials are preparing a final trade deal that President Donald Trump and his Chinese counterpart Xi Jinping could sign in weeks, people familiar with the matter said, even as debate continues in Washington over whether to push Beijing for more concessions. There is talk that a major summit between China’s XI and Trump could happen in a few weeks; Xi has to lead China’s annual National People’s Congress in early March, as well as make other foreign trips. The IMF commenting that if a trade deal isn’t worked out, it will harm both economies; a 0.2% drop in US growth and a 0.6% fall in China. At the end of March if there isn’t any agreement Trump is considering adding the 25% increase in imports from China, up from 10% currently and after he extended the deadline from March 1st. So far the trade discussions haven’t caused any direct impact on US markets. Next Friday we will see the February employment data.

Source: TBWS