Post-Easter US data paints a downbeat outlook for near-term growth
Matt Weller, CFA, CMT March 28, 2016 10:45 AM
It’s been an exceedingly slow start to the week with most of Europe out of the office for an extended holiday weekend, but trade is starting to pick up modestly heading into the US session.
Traders got their first taste of what should be an active week of economic data with the release of the February’s US Core Personal Consumption Expenditures (PCE) figure, as well as Personal Income and Spending data for that month. Core PCE is the Fed’s preferred inflation number, and with recent improvements in wages and the more widely-watched Consumer Price Index (CPI) indicator, hopes were high that Core PCE would confirm growing price pressures in the US economy.
Unfortunately for Fed hawks though, the figure came out slightly below expectations, showing that prices rose only 0.1% m/m (1.7%) year-over-year. The stagnation in Core PCE validates the Fed’s decision to shift to a less hawkish posture in its recent meeting and makes it marginally less likely that the US central bank will raise interest rates in its June meeting. According to the CME’s FedWatch tool, fed funds futures traders are currently pricing in about a 42% chance of a rate hike come June, and over the coming weeks, the dollar is likely to trade in sync with these expectations.
The other noteworthy economic release out of the world’s largest economy was February’s Personal Income and Spending data, which was slightly more optimistic. Personal Income rose 0.2% over the month, better than the 0.1% rate economists had anticipated. That said, Personal Spending came in a tick below expectations at 0.1% m/m vs. 0.2% eyed; taken in tandem, these figures suggest that US consumers both earned and saved more than expected, which historically supports the longer-run sustainability of the economy at the expense of short-term growth.
Now, traders will turn their attention toward the Pending Home Sales report at 10:00 ET (14:00 GMT), with Consumer Confidence data and a speech by Fed Chairwoman Yellen on tap for tomorrow. Later in the week, the US labor market is likely to steal the show, culminating in Friday’s release of the March Non-Farm payrolls figures (stay tuned for our full NFP preview report on Thursday).
The market’s reaction to today’s economic data has been predictably subdued, though the US dollar is edging lower on the near-term data disappointments. On the whole, market sentiment appears cautiously optimistic heading into the US session, with US equities pointing toward a modestly higher open and oil nudging 1% higher. Readers should expect volatility and market activity to ramp up gradually as we head through the week.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.