Download App

[US Treasury Market Holds Breath Awaiting Iran's Fate; Core PCE May Awaken Bond Markets] ⑴ The macro market is in a stalemate, with all eyes focused on Iran's fate. Latest news indicates that Trump is weighing the possibility of initial limited strikes against Iran to force a nuclear agreement. Without this looming threat to suppress selling, US Treasuries should have risen. However, data risks are accumulating, and today's core PCE data may awaken bond market sentiment. ⑵ The December core PCE may be a key test of inflation expectations. The market expects a 0.3% month-on-month increase, but there is a possibility of an upward surprise. The minutes of the January FOMC meeting showed that Fed staff believed the government shutdown led to an underestimation of inflation data in November and December. If today's data confirms this assessment, it will exacerbate concerns about a renewed acceleration in inflation. ⑶ The Fed's internal assessment of inflation risks has turned hawkish. Most participants warned that the process of inflation falling back to the 2% target may be slower and more uneven than expected, and the risk of inflation remaining persistently above the target cannot be ignored. This statement foreshadows the market reaction should today's data exceed expectations. (4) Tactical positions have been established in advance. The current strategy leans towards shorting at the 10-year yield level of 4.09% and the 2-year yield level of 3.41%, and seeking to further increase positions when yields rebound. The intraday trading range for the 10-year yield is expected to be between 4.05% and 4.09%. (5) A series of data releases are scheduled for Friday. At 21:30 Beijing time, the December personal income and consumption expenditure, as well as the preliminary value of Q4 GDP, will be released. Subsequently, at 21:45, the preliminary values of February manufacturing and services PMI will be released, and at 22:00, the delayed release of November and December new home sales, as well as the final value of February University of Michigan consumer sentiment, will be revealed. (6) Optimistic GDP data expectations. The market consensus is for an annualized quarter-on-quarter growth of 3.0% in Q4, with the New York Fed model predicting 2.71%, while the Atlanta Fed model has lowered its forecast from 5.4% to 3.7%. Net exports and personal consumption are expected to be the main contributors. The core PCE deflator is expected to rise at an annualized rate of about 2.4%, with a year-on-year growth rate of 2.8%, slightly lower than the latest FOMC forecast of 3.0%. (7) Consumption data shows a K-shaped divergence. Income is expected to grow 0.3% month-on-month, while spending is expected to grow 0.4%. High-income households continue to support consumption, while low-income households are cutting back on spending. The three-month annualized rate of core PCE has fallen to 2.3%, and the six-month average has declined to 2.6%, indicating that inflation is slowly cooling. (8) Consumer confidence unexpectedly rebounded. The preliminary February figure showed the confidence index rising to 57.3, and the one-year inflation expectation fell from 4.0% to 3.5%, the lowest since January 2025. Market expectations for the final figure are largely in line with the preliminary figure, with only the current conditions index potentially undergoing a slight adjustment. (9) The delayed housing data will finally be released. The November and December new home sales data will be released together, with the market expecting 730,000 units in December. Despite a sharp 9.3% drop in the pending home sales index in December, analysts still expect new home sales to perform well.