Forexlive Americas FX News Report: PCE Inflation Falls, Any Fall is a Good Thing

Financial markets were concerned about the US core PCE inflation data. Not only do traders pay attention to inflation, but they know that the PCE is the Fed’s “favored” inflation measure.

Core PCE fell from 5.2% to 4.9% in April, compared to headlines of 6.3% and 6.6%. Granted, that’s still higher than the Fed would like to see, but this week’s economic news largely points to slowing growth, some cracks in confidence and even jobs (see the tech giant’s list of ongoing layoffs), hopefully its There has also been a corresponding drop in inflation (and inflation expectations).

Notable in today’s economic data today is a 2.1% increase in inventories. It was the third straight month that inventories rose more than 2%. That could be an antidote to problems in the commodity supply chain as the U.S. economy shifts more toward activities like services and holidays. If inventories continue to build up, it could cause prices for some items to drop.

Also today, the Michigan Consumer Confidence Index came in at 58.4 versus expectations for 59.1. The sentiment index was the lowest since 2011. The expectations index was also near its low for the year and its lowest level since 2011. So while consumers may be excited by factors like earnings and housing in stocks, concerns about housing market levels and lower stock prices are taking their toll on margins. Consumers are unlikely to cancel their vacations, or skip Elton John’s or Michael Buble’s concerts, but they may cut down on other spending habits, especially if oil prices remain high. This weekend, there will be a lot of people going out to dinner and movies, as Top Gun is expected to open to large audiences in theaters. Oh….the good old days.

That being said, the Fed is still walking a tightrope as it tries to bring the economy down to a moderate level.

Still later:

  • U.S. jobs will be released next Friday. Traders will be hoping for a softer figure. The stock market will be hoping for soft data (we are in an environment where economic data is slowing, at least for now in a positive for stocks).Expected earnings of 325K, still pretty strong with current unemployment of 3.5%
  • qt. The Fed has yet to begin its bond sales program. However, over the past 3 weeks, the 10-year yield has fallen to 2.74% from the current 3.203%. At least if the Fed were to sell Treasuries that they bought in 2020 and 2021, when the 10-year yield was between 0.6% and 1.8%, they wouldn’t sell them at the high yield they were 3 weeks ago, 3.20%, but more Low 2.7%. Will Treasury and Mortgage-Backed Selloffs Push Yields Higher? PS, at least part of the balance sheet decline will be the maturation of short-term issues that appear to be in considerable demand.
  • Russian/Ukrainian War. A $150 rise in oil prices is not out of the question, as oil supplies remain tight and the risk of further escalation increases, especially if it starts affecting things like the food people depend on.
  • China and Chinese Covid policy. The bad news about China’s Covid policy is that they shut down the economy, which has the potential to exacerbate supply chain issues and inflation. The good news is that demand for the commodity appears to be low. Apple this week talked about declining iPhone sales. This might be a good thing. If demand is strong, supply may not exist and could push prices higher.

These (and more) must be addressed in the marketplace. However, the focus this week is on low inflation, low yields, low inventories and a low dollar.

In today’s foreign exchange market, the New Zealand dollar is the strongest and the US dollar is the weakest.

foreign exchange
Strongest to weakest among major currencies

The kiwi’s gains may have been a delayed reaction to Wednesday’s 50bps rate hike by the Reserve Bank of New Zealand. At the meeting: In addition to raising interest rates by 50 basis points, it also raised expectations for future interest rates. A reminder,

  • In September 2022, the RBNZ expects the official cash rate to be 2.68% (previously 1.89%).
  • By June 2023, the RBNZ expects the official cash rate to be 3.88% (previously 2.84%).
  • In September 2023, the RBNZ expects the official cash rate to be 3.95% (previously 3.1%).

The Reserve Bank of New Zealand said it expected a peak of 3.95%. The RBNZ had previously seen a peak of 3.35%.

After starting higher on Wednesday, NZD/USD is lower, but within the rising 100 hourly SMA (see post here). That pattern continued on Thursday. However, the NZD is up 0.91% against the USD today. It was the biggest mover of the day. The dollar sell-off also contributed to a string of “low inflation” type numbers and a general flight from the safety of the greenback, driving the greenback lower.

A look at other markets shows:

  • Spot gold rose $3.16, or 0.17%, to $1,853.49
  • Spot silver up $0.11, or 0.5%, to $22.10
  • WTI crude remains as high as $115.19, up $1.10 or 0.96%
  • Bitcoin is trading below $29,000 at $28,813.
  • Natural gas traded as high as $9.43 this week, its highest level since August 2008, but retreated over the weekend to settle at $8.70.It’s still 6.73% higher this week, but as I said, it could be worse

In the U.S. stock market, the major indexes snapped a multi-week losing streak, rising more than 6% this week alone. Here are the major indexes’ gains this week:

  • The Dow Jones Industrial Average rose 6.24%
  • The S&P rose 6.58%
  • The Nasdaq rose 6.84%
  • Russell 2000 rose 6.46%

In the U.S. bond market today, yields are little changed, but have fallen sharply from cycle highs reached in May:

  • 2.484% in 2 years, +0.2 bps. The high cycle yield reached 2.857%. Yields fell -37 basis points.
  • 5-year 2.724%, +1.2 basis points. The high cycle yield reached 3.107%.Yield fell -38 basis points
  • 10-year 2.743%, -0.8 basis points. The high cycle yield reached 3.203%. Yields have fallen -46 basis points.
  • 2.972% over 30 years, -1.2 basis points. The high cycle yield reached 3.309%.Yield fell -34 basis points

For the trading week:

  • 2 years down -10.3 basis points
  • 5-year decline -8.0 basis points
  • 10-year decline -4.2 basis points
  • 30 years down – 2.0 basis points

Overall, it’s been a good week, a great week, if you measure investor sentiment in terms of things like the stock market and interest rates. Thank you for your support and patience this week as Adam had to deal with a 3-day blackout last Sunday due to a storm (he’s dealing with everything about it).

After a 7/8 week of lower stocks and mostly higher yields, the happy days are back.

However, as a result of Russia’s continued aggression in Ukraine, old and young, men and women are dying senselessly, and human emotions continue to be sombre because of the senseless killing of 19 other 10-year-old children, and their lives in Texas. Two teachers in Uwald, S. (and 14 in Buffalo, N.Y.).

No matter what was written on a piece of paper nearly 250 years ago, I will never understand this thought process.

I’ve always said – and believed – that when my time came, I didn’t want to be remembered by my party, the country I was born in, or even the religion I practiced. I’m not affiliated with any particular ideology, I just happened to be born in America and my parents are Catholic, so that’s how I grew up. I love my hometown and country. I love my faith, but I love something greater.

I want to be remembered as someone who appreciates that life is a gift from God (if you have a different God than me, that’s okay, I don’t care). God gave me this life full of choices. The choices – kind of like deals – are either this way – the right way or that way – the wrong way. The right way is to love each other. The wrong way is not to love each other.

None of us are perfect, and I’m in that bucket. We all have losing trades.

Sometimes I make judgments. Sometimes I choose not to love, to hurt someone.

But if I really appreciate this gift called life, I can get back on the bandwagon. I can attack the good trends in my life with love at the center.

I will enjoy this weekend and wish you all a weekend of love and peace. But I also pray for the children, men, women and children, and their families who have lost the gift of life early for unnecessary reasons, and leave a void that can only be filled with faith.

love each other…