The market is waiting as all attention is focused on the Fed's preferred measure of inflation: personal consumption expenditures (PCE). In Europe, yields on Eurozone bonds, such as German bonds, are rising after inflation in the Eurozone accelerated more than expected to 2.6% versus the expected 2.5%, up from 2.4% in April. The stubborn inflation in the Eurozone – although approaching the ECB's target – could mean that interest rate cuts are slow to materialize. The market still expects the ECB to cut interest rates for the first time in June.
Analysts are optimistic that the core PCE deflator, favored by the Fed to measure inflation over other figures, has likely fallen to its slowest monthly increase this year (YoY). Yesterday's US Q1 GDP growth data fuels hopes that the trend in US PCE data does not mirror recent US CPI data. However, the market has been very nervous all week as traders have been bracing for another hot number that could further delay rate cuts from an already increasingly hawkish Fed.
Given that expectations are indeed relatively low, I expect a little more than a 50% chance that the data will be slightly hotter than expected, but possibly not such that the market revises rate cut expectations for this year significantly (further) downwards.
We are looking back on a positive month for equities, unless we see very heavy profit taking today – which I don't expect. This month's gains have been fueled by the rally in tech and a solid earnings season, especially for the big tech companies, including Nvidia's mega report (again) that keeps the AI hype alive.
A jury has found Donald Trump guilty on all 34 counts of falsifying business records in his hush money trial, making him the first former US president to be convicted of criminal wrongdoing. Trump is due to be sentenced on July 11 and faces a difficult legal and political task when he runs as the Republican candidate against President Joe Biden in November. The verdict is likely to create some (light) headwinds for Wall Street, as a possible conviction could shift the momentum from Trump to Biden.
👁 ROB'S MARKET OVERVIEW:
⚠️ All eyes on US PCE. Market has already priced in more signs of hot inflation. Due to low expectations the chance for a slightly hot reading is relatively high. The hotter the PCE data, the more the USD and yields will rise, which means headwinds for stocks and yield sensitive assets. Since today's movements depend on PCE data – we keep it short:
May 31 2024
🌐/🇺🇸 Global Markets ↕️/↘️/↗️ (depends entirely on PCE data – we don't expect a very hot reading. We may first see some losses, before stocks can likely stabilize a bit. A much hotter-than-expected PCE reading, however, would cause sharp losses).
💱 Forex
EUR ↗️/↕️/↗️ (suppored by hotter-than-expected Eurozone inflation, would see some headwinds if USE PCE hot)
USD ↕️ (depends entirely on US PCE data – if hot, USD will rise back to this week's highs and likely above)
GBP, CHF➡️/↘️ (would see headwinds on hot US PCE data)
AUD ↗️/↕️ (depending on US PCE data – if hot, AUD falls sharply)
JPY ↘️/➡️ (weakness despite hotter-than-expected Tokio inflation; BoJ confirmed intervention earlier in May which failed to support the JPY sustainably )
⚒ Commodity Markets ↕️ (depends on US PCE data – hot data would weigh on all commodity prices)
⚡️Cryptos ↕️ (Bitcoin stabilized in range $67K – $70K – hot PCE report would cause short-term headwinds)
(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)
Your Robert
