Back Shoot Around

22V Afternoon Shoot Around: PCE, 10yr, and China Update

Published on September 30, 2026

Dennis DeBusschere

Bottom Line: Demand Indicators Need to Slow

Longer term, we caution that demand indicators need to slow before Treasury yields move sustainably lower. The Fed’s financial conditions model indicates 40bps less impulse to GDP growth. False precision, but the implication is that yields should be sufficiently restrictive at these levels. Consumer durables spending, business fixed investment, and residential construction should react to higher rates.

Relevant News: Today’s Data

The August core PCE print and historical revisions to that data both came in somewhat more dovish than expected. This was due to larger than expected downward revisions to non-market services prices that tend to be more opaque and less cyclically relevant than other areas. Given the non-market sources of these revisions and the Fed’s general knowledge of them at the September meeting, beyond attenuating October hike odds, we wouldn’t place too much emphasis on this print for the Fed. Real GDP growth was notably revised higher in ‘26H1 and should mechanically raise the Fed’s forecast for this year by at least 30bps to 2.6% with upside risks.

Things to Watch [Consensus, Results]:

Strategy:

Why 10yr Yields are Biased Lower and What Could Derail that Decline – (HERE)

The below chart shows two of the better indicators of consumer demand (Johnson Redbook & Fiserv – SpendTred), both updated yesterday, continue to increase. The pain trade into year-end COULD be surprisingly resilient economic growth and UST yields moving HIGHER. Unusually strong Household net worth could lead to consumer being more resilient to higher rates or tightening in FCI. In short, we would like to see tighter financial conditions slowing consumer spending growth before making a more enduring short 10yr yield call.

China:

Latest Easing Unlikely to Move the Needle– (HERE)

Beijing announced a new package of mortgage subsidies and policy lending measures, but the scale is likely too small to meaningfully boost growth or accelerate a property recovery. The mortgage subsidy is modest relative to prior consumer support programs, while lower PSL rates, expanded eligibility and a higher relending quota are unlikely to spur much new investment given weak project demand and local government deleveraging. The targeted easing reduces the likelihood of near-term monetary easing, but continued growth pressure and tight fiscal policy increase the case for eventual LPR or RRR cuts.

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