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Market Roundup, 30s Race 2s To Bottom After Hot PCE

US TSYS
Tsys extend lows into midday after this morning's hot PCE read points to "more work to do" to reel in inflation, yield curves flatter but off lows as 30s races 2s to new contract lows (TUH3 new contract low of 101-18.25, 2YY hits 4.8302% - highest level since July 2007).
  • Tsys gapped lower as nominal personal spending was stronger than expected in Jan (1.8% vs 1.4) and incomes weaker (0.6% vs 1.0), with the savings rate rising further to 4.7% in Jan from 4% in Q4 and a low of 2.7% in June (albeit prone to sizeable revs). Stronger inflation meant that real spending came in as expected, bouncing strongly after yesterday's surprise downward revision with the 1.1% M/M the strongest since Mar'21.
  • Adding impetus to the selloff, new home sales surprisingly jump 7.2% M/M in Jan (cons 0.7) after an upward revised 7.2% M/M (initial 2.3), leaving sales at 670k (cons 620k) for the highest since March.
  • Fed funds implied hike for Mar'23 at 31.0bp, May'23 cumulative 58.1bp (+1.9) to 5.164%, Jun'23 75.5bp (+3.0) to 5.338%, terminal at 5.40% in Aug'23/Sep'23, off first half high of 5.445%.
  • Early Fed speak from Cleveland Fed Mester in line with previous, favoring getting rates somewhat above 5%, won't pre-judge next meeting size. And it’s true that financial market alignment with Fed is much closer than before, with a terminal cutting 5.36% (almost 1bp higher since remarks) before only 16bps of cuts to 5.20% year-end.
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