The Market Today

Income and Spending Data Remain Very Strong: August’s Personal Income and Spending data came in largely as-expected, with a slight miss on income.  Personal income grew 0.34% MoM, almost rounding up to the projected 0.4% increase.  On a YoY basis, personal income is now up 4.7%, remaining near its strongest levels since early-2015.  Disposable income, excluding tax and non-tax payments, rose 0.3% while incomes were up 0.22% MoM after adjusting for inflation (slightly weaker than the 12-month run rate of 0.24%).  Spending rose 0.3% MoM, as-expected, which was a full 0.1% weaker than the 12-month run rate.  On an inflation-adjusted basis, real personal spending is up 5.3% YoY, remaining at its highest rate of growth of this economic cycle. The savings rate held steady at 6.6%.

 

Fed’s Preferred Measure of Inflation Softer than Expected: The August PCE inflation report showed fractionally weaker core price gains than expected. Headline PCE fell from a 2.3% YoY growth rate to 2.2% and core PCE held at 2.0%.  However, looking more granularly, core PCE was projected to rise to 2.08% YoY given the base effects pushing the inflation figures temporarily higher.  Because the MoM gains were weaker than expected, core actually pulled back to 1.96% and now points to inflation trending near 1.8-1.9% after the base effects work their way through the data.

 

Consumer Confidence Revisions: At 9:00 a.m. CT, the final revision to September’s University of Michigan Consumer Confidence report is expected to show confidence slightly weaker than initially projected.

 

NY Fed President Williams: Also on the calendar today are comments from New York Fed Bank President Williams at 3:45 p.m.

 

Yet Another Disappointing Home Sales Report: The August Pending Home Sales report, released yesterday morning, was yet another disappointing home sales report.  Sales fell 1.8% MoM versus expectations of a 0.5% decline.  On a year-over-year basis, pending sales are now down 2.3%. Pending home sales are collected through a survey of realtors and real estate professionals, tabulating the number of existing homes which have gone under contract for sale but not yet closed.  According to the National Association of Realtors, 80% of pending home sales go to closure within two months of contract signing.  Pending sales currently point to existing home sales dropping another 2% in coming months.

 

Ryder Cup 2018: [Score Alert] The 2018 Ryder Cup is officially underway from Le Golf National in Paris and the U.S. has taken an early 3 to 1 lead on Europe heading into the afternoon foursomes.

 

TRADING ACTIVITY

Italian Budget Proposal Unnerves Markets: Markets have been rattled overnight after Italy’s populist, anti-establishment government unveiled its budget calling for a larger-than-expected budget deficit of 2.4%, effectively fulfilling campaign spending promises. While the deficit remains smaller than the EU’s statutory 3% cap but is larger than what European officials expected from the slow-growing, debt-laden country.  The final budget will be released later in October and the European Commission will likely reject it.  Italian stocks are leading Europe lower, down 4.5% which is the largest single-day drop in over two years.  Spain’s market is down 1.9% while German stocks are down 1.8%.  Overall, the Euro Stoxx 50 is down 1.8%, helping push U.S. stock futures down 0.4% in pre-market activity. Benefiting from the flight-to-safety, the German 10-year yield is down 6.6 bps to 0.46% which has helped push the 10-year Treasury yield down to 3.03%.  Meanwhile, Italian 10-year yields have jumped 36 bps to 3.24%, the highest yield since 2014.