This week is packed with a slew of significant economic releases, including housing, manufacturing and international trade data. While these data points are important, it is the Personal Consumption Expenditures (PCE) report due Friday that is expected to possibly drive the FOMC's actions.
PCE report on inflation to influence the FOMC’s next steps
According to Federal Reserve officials, the PCE report is an important gauge of inflation. Therefore, the trends stemming from this release will be incredibly informative, especially since the CME Group’s Fed Watch tool predicts an 80% probability of a 25-basis point rate hike in the Fed Funds target range at the upcoming meeting.
Since 1950, the Stock Market tended to hit its lowest point after a recession commences. In contrast, the 10-year versus 2-year treasury yield spread tends to normalize before the stock market reaches its bottom. Presently, the yield differential measured by the CME Group's micro yield futures contracts is inverted by approximately 52 basis points. Thus, there is still a considerable distance to go before the yield curve reverts to normal.
Additional topics covered:
- A discussion of the Fed’s quiet period
- The difference between Gross Domestic Product and Personal Consumption Expenditures
- Deposit outflow from regional banks, deposit inflows into Treasuries
- Regional banks in the US borrowing and lending changes over the last 30 days
- WTI Light Sweet Crude Oil price behavior
- 2 yr. vs 10 yr. Treasury Notes yield inversion
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