PCE closes out August in focus; peso holds 16.94 as Mexican stocks add 0.79%

Good morning!

The book feels thin this morning. US PCE prints around 8:30 ET, and nobody wants to add risk before seeing the inflation gauge the Fed watches most.

Yesterday's "tomorrow" is today

I signed off yesterday saying US personal spending was tomorrow. Tomorrow arrived, and it hasn't been released yet — so I write it as pending, not as a verdict. It's August's last major number before the Sept 4 payrolls report.

That's why the tape is heavy: S&P futures come in -0.14% after closing +0.32%, and the peso is virtually frozen at 16.9430. Locally, Mexico's IPC is up 0.79% to 66,293, marching to its own beat.

A hot PCE cools Fed rate-cut expectations and gives the dollar some air. A soft one keeps the peso on the firm ground it's been holding — its best zone in over two years.

Crude helps, the long end doesn't

WTI drops 2.51% to 80.29, a second down session, which usually eases the inflation picture. So far, so good.

My discomfort sits in the long end. The US 10Y climbs to 4.64% (+0.13%), a third straight session higher, and the peso firms anyway. The 20-day correlation between the two runs at -0.52 — the peso strengthening while US yields rise. That's not textbook, and it doesn't hold forever.

The Banxico–Fed gap at 2.87pp still pays to hold pesos, but if that yield keeps grinding toward 4.75%, the cushion thins fast.

The call: staying long peso, watching the yield

Yesterday's condition — neutral if the pair closes sustained above 17.16 or the 10Y breaks 4.75% — never triggered: 16.94 and 4.64% are both well clear of those posts. No reason to flip, so I keep the peso bias.

One caveat cutting against me: Chicago specs hold 79,452 net long contracts in the peso (COT through Aug 18), though they trimmed a bit last week. Positioning is already crowded on one side, and that's fuel for a dollar bounce if PCE surprises.

If you're carrying a short hedge, today's event to respect is that 8:30 print, not the technical level. My read: as long as spot defends the 16.8781 floor and the 10Y stays below 4.75%, I lean with the peso. Today's data is the only thing that can move the needle before month-end.

Risk On eases from 60 to 56 and stays CONSTRUCTIVE: a sleepy VIX at 15.70 and MOVE slipping to 71.92 support it, while the rising long yield and soft futures pull points off. Constructive, with all eyes on a single number.

— See you tomorrow for Thursday's view.