Market Commentary

Updated on February 29, 2024 10:05:01 AM EST

Today's big news was the release of January's Personal Income and Outlays report, specifically the PCE index withing the report. This is the Fed's preferred inflation reading and it came in pretty much as expected. The monthly PCE rose 0.3% when analysts were expecting a 0.4% increase. The more important Core PCE pegged expectations at up 0.4%. The year-over-year numbers came in as expected. Even though the readings didn't give us any major surprises, we are still seeing a positive reaction in bonds this morning. This may be, more or less, a sigh of relief rally that tells us traders were worried what the data was going to show.

The other headline numbers in the report gave us mixed results. They showed income rose 1.0%, twice as much as predicted. That is bad news for bonds and mortgage rates because more income allows consumers to spend more, fueling economic growth. However, the 0.2% increase in spending tells us that consumers did not spend any more than expected, despite the additional income. Accordingly, these readings are neutral to slightly negative for rates. It is the PCE numbers that are contributing to this morning's bond strength than anything else.

Last week's unemployment update that was also posted early this morning revealed 215,000 new claims for jobless benefits were made. This was an increase from the previous week's revised 202,000 initial filings and more than the 206,000 that was expected. Rising claims are a sign of weakness in the labor market, meaning this report can be considered good news for mortgage rates.

Tomorrow brings us two more relevant economic releases, including the highly important Institute for Supply Management (ISM) manufacturing index at 10:00 AM ET. They are expected to announce February's reading stood at 49.5, up from January's 49.1. This index tracks manufacturing executive opinions on business conditions. An increase means more surveyed manufacturers felt business improved during the month than did last month. If we see a decline, the bond market should respond favorably since it would be a sign of economic weakness, possibly leading to a noticeable improvement in rates.

The University of Michigan's revision to their Index of Consumer Sentiment for February will close out the week's calendar, also at 10:00 AM ET. Forecasts show this index coming in at 79.6, up from the preliminary reading of 78.8 two weeks ago. It is fairly important because it helps us measure consumer confidence that translates into consumer willingness to spend, but it is not considered to be a major market mover. A decline would be considered good news for rates.

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