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The 7.2% surge in third-quarter GDP surprised even the most optimistic of forecasts and Treasuries have predictably plunged, while stocks and the dollar have benefitted. Selling in bonds has been widespread as the data has put the market on notice that the economy is roaring back. The short end is underperforming as solid growth and signs of improvement in the job market as initial claims are holding in the 386,000 area, will inevitably put Fed rate hikes in motion. Bearish curve flatteners are the trade for the day.
A trifecta of economic data highlight Friday's session. The personal income report takes center stage early, with expectations for 0.2% increase in income and 0.1% dip in PCE according to the MMS survey median. However, market reaction will be muted ahead of Michigan sentiment and Chicago PMI. The University of Michigan consumer sentiment index is expected to be little changed from the preliminary October reading of 89.4. A larger than expected change may inspire a kneejerk reaction, but Chicago PMI will quickly steal the spotlight.
Chicago PMI is expected to post a decent gain, with the MMS survey median pointing toward a jump to the 55.0 level from September's 51.2. A surge to this area or better would add pressure to Treasuries.