Forexlive news feed in the Americas market: PCE inflation is dropping and any drop is a good thing

Financial markets were concerned about the core PCE inflation data in the US. Traders are not only focused on inflation but know that PCE is the Fed’s “preferred” inflation indicator.

Core personal consumption expenditures fell from 5.2% to 4.9% in April while the headline came in at 6.3% versus 6.6%. Admittedly, this is still higher than what the Fed wants to see, but with economic news this week mostly showing slowing growth, confidence and even some employment gaps (see list of ongoing salary cuts at tech giants), the hope is that there will be a drop. Similar in inflation (and inflation expectations) too.

Of note today in today’s economic data, inventories rose by 2.1%. This is the third consecutive month with stocks gaining more than 2%. With the US economy shifting more toward services and things like vacations, this could be the antidote to commodity supply chain issues. If inventories continue to increase, this could lead to lower prices of some commodities.

Also today, Michigan’s index of consumer confidence came in at 58.4 vs. 59.1 estimates. The sentiment index is the lowest since 2011. The expectations index is also near its lowest level for the year since 2011 as well. So, even though the consumer may be away from gains and things like housing stock, concerns about housing market levels, lower stock prices have an impact on the margins. Consumers aren’t likely to cancel their vacations, or not go to Elton John or Michael Buble’s parties, but they may change other spending habits especially if oil prices remain high. This weekend there will be a lot of people out to dinner and see a movie as Top Gun is expected to open to large crowds in theaters. Oh….good ole days.

Having said that, the Fed is still on a tightrope while trying to quietly lower the economy.

will come later:

• US jobs will be released next Friday. Traders are hoping for a softer figure. The stock market is hoping for a lower figure (we’re in an environment where slower economic data is good for stocks at least for now). Expectations are for a gain of 325K which is still fairly solid with the current unemployment rate at 3.5%.
• Qt. The Fed has not started its own bond selling program. However, the past three weeks have seen the 10-year yield drop from 3.203% to currently 2.74%. At least if the Fed sells Treasurys bought in 2020 and 2021 when 10-year yields were between 0.6% and 1.8%, it will not sell them at the high yield of 3 weeks ago from 3.20%, but at 2.7% lower. . Will Treasury and Mortgage-Backed Selling Push Returns Up? Note, at least part of the balance sheet decline will be the maturation of short-term issues for which there appears to be an adequate amount of demand.
• Russia/Ukraine war. A $150 oil price hike is not far from 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 for subsistence.
• China and China policy on Covid. The bad news about China Covid policy is that they have shut down their economies which could exacerbate supply chain problems and inflation. The good news is that the demand for goods appears to be lower. This week Apple talked about falling iPhone sales. This may be a good thing. If demand is strong, supply may not be there and could push prices higher.

These things (and more) have to be resolved in the markets. However, this week, the focus was on lower inflation, lower yields, lower stocks, and lower dollar as well.

In the forex market today, the New Zealand dollar was the strongest and the dollar was the weakest.

The New Zealand dollar’s gains may be a delayed reaction to the Reserve Bank of New Zealand’s 50 basis point hike on Wednesday. At the meeting: In addition to raising interest rates by 50 basis points, they also raised expectations about future rates. Reminder,

• In September 2022, the Reserve Bank of New Zealand expects the official cash rate to be 2.68% (prev. 1.89%).
• By June 2023, the Reserve Bank of New Zealand expects the official cash rate to be 3.88% (previously 2.84%).
• In September 2023, the Reserve Bank of New Zealand expects the official cash rate to be 3.95% (previously 3.1%).

The 3.95% is expected to be the peak, according to the Reserve Bank of New Zealand. The peak was previously seen at 3.35% by the Reserve Bank of New Zealand.

After initially moving higher on Wednesday, NZDUSD moved lower but found buyers support against the 100-hour high of the moving average (see post here). The pattern continued on Thursday. However, the NZD is up 0.91% against the US dollar today. It was the biggest mover of the day. The selling of the US dollar also contributed to the series of “low inflation” numbers, and the general escape from the safety of the US currency, which pushed the dollar lower.

A look at other markets showed:

• Spot gold was up $3.16, or 0.17%, at $1,853.49
• Spot silver prices rose $0.11 or 0.5% at $22.10
• WTI Crude Oil remained higher at $115.19, up $1.10 or 0.96%.
• Bitcoin price is trading below the $29,000 level at $28,813.
• Natural gas, which traded to this week’s high of $9.43 at the highest level since August 2008, fell on the weekend and closed at $8.70. That’s still 6.73% higher this week, but like I said it could have been worse

In the US stock market, the major indexes there broke their multi-week streak of declines dramatically by rising more than 6% this week alone. Here are the major indexes’ gains for the week:

• The Dow industrial index rose 6.24%.
• The S&P rose 6.58%
• Nasdaq rose 6.84%
• Russell 2000 rose 6.46%

In the US bond market today, yields are unchanged slightly, but have fallen sharply from cycle highs reached in May:

• 2 years 2.484% +0.2 basis points. The cycle’s high yield was 2.857%. The yield decreased by -37 basis points.
• 5 years 2.724%, +1.2 basis points. The cycle’s high yield was 3.107%. Yield decreased by -38 basis points
• 10 years 2.743%, -0.8 basis points. The cycle’s high yield was 3.203%. The yield decreased by -46 basis points.
• 30 years 2.972% -1.2 basis points. The cycle’s high yield was 3.309%. Yield decreased by -34 basis points

For the trading week:

• 2 years down -10.3 basis points
• 5 years down -8.0 basis points
• 10 years down -4.2 basis points
• 30 years decreased -2.0 basis points

Overall, if investors’ mood is measured by things like stock markets and interest rates, this week has been a good week, and a great week. Thank you for your support and patience with me this week as Adam had to deal with 3 days of blackouts in a row as a result of violent storms last Sunday (he was dealing with all that goes with it).

The happy days are here again after 7/8 weeks of falling stocks and returns are mostly moving higher.

Yet the human mood remains bleak as a result of continued Russian aggression in Ukraine where old and young, men and women are dying meaninglessly, and as a result of the other senseless murders of nineteen-year-olds, their teachers in Ovaldi, Texas (and the deaths of 14 in Buffalo, New York.

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

I have always said—and believed—that when my time came, I didn’t want to be reminded of my party affiliation, the country in which I was born, or even the religion I practiced. I don’t belong to any particular ideology, I was born in America and my parents were Catholic, and that’s how I was raised. I love my home and my country. I love my faith, but I love something greater.

What I would like to remember is the person who appreciated that life is a gift from God (if you have a different god than mine it’s okay I don’t care). God gave me this life full of choices. These options – like trades – are either this way – the right way, or this 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 am in this Aquarius. We all have losing trades.

There are times when I am wiser. There are times when I choose not to love or hurt someone.

However, if I am truly grateful for this gift called life, I can turn back in that direction. I can attack the good trends in life with an emphasis on love.

I will be looking forward to enjoying the weekend, and wishing you all a weekend full of love and peace. However, I will also remember and pray the children, men and women, young and old who lost the gift of life too early for meaningless reasons, and to their families who are left in a void that can only be filled by faith.

We love each other…