Friday data Olympics: PCE (almost) sticks the landing
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U.S. 10-Year Treasury yield falls to ~4.21%
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FRIDAY DATA OLYMPICS: PCE (ALMOST) STICKS THE LANDING
As athletes gather in Paris to witness the lighting of the Olympic cauldron, market participants gathered around their monitors for Friday's economic data.
This week's grand finale arrived in the form Commerce Department's broad-ranging Personal Consumption Expenditures (PCE) report USPCE=ECI.
The star of the show was the PCE price index, which rose on monthly and annual bases by 0.1% and 2.5%, respectively, hitting consensus on the nose.
The core measure, which omits volatile food and energy items, took a small hop, landing just a hair warmer than analysts anticipated, growing 0.2% from May and 2.6% year-on-year.
"Although year-over-year core PCE came in slightly higher than expected, there was nothing in the report that suggests there's an unexpected reacceleration in inflation," says Bret Kenwell, U.S. investment analyst at Etoro.
"Along with a lower-than-expected CPI report earlier this month and a recent trend of lower inflation figures, this should give the Fed the green light to cut rates later this quarter."
In fact the price index is now well within one percentage point of Powell & Co's 2% annual target, and provides the final piece of the June inflation puzzle.
Meanwhile, financial markets have all but cemented expectations for a September rate cut. The likelihood of a 25 bp reduction in the Fed funds target rate is now at 87.7%, with an 11.9% odds that the central bank will implement a super-sized 50 bp cut, according to CME's FedWatch tool.
Elsewhere in the report, personal income growth decelerated to 0.2%, instead of repeating May's 0.4% figure as economists anticipated.
Disposable income growth slowed to a trickle, rising by a mere 0.1%.
As for consumer spending, which accounts for about 70% of the U.S. economy, it cooled 10 basis points to 0.3%, hitting the expectations bull's eye.
Outlays on services and non-durable goods increased by 0.2% and 0.5%, respectively. But elevated interest rates have curbed consumer enthusiasm for shelling out the dough for durables, which fell by 0.2%.
Taken together, the saving rate - which is the unspent portion of disposable income and is often seen as a barometer of consumer expectations - dipped to 3.4% from 3.5%, the lowest reading since December 2022.
But the lower saving rate could be a sign of distress from some consumers.
The downward revision to the saving rate and its latest dip in June demonstrate the strain on low- and moderate-income household finances," writes Bill Adams, chief economist at Comerica Bank.
"Americans who entered the recent bout of high inflation with narrow financial cushions are feeling pressure on their standards of living."
Lastly, the University of Michigan (UMich) issued its final take on July consumer sentiment USUMSF=ECI, which unexpectedly ticked 0.4 points higher to 66.4.
An uptick in the expectations component - see the saving rate, above - more than made up for the respondent's slightly cooler take on their current condition.
Overall, though, sentiment is generally rather blah.
"Despite the upward revision, the sentiment index remains depressed compared to its long-run average," says Grace Zwemmer, associate economist at Oxford Economics. "High prices and elevated interest rates are still weighing on the collective psyche."
One-year inflation expectations held firm at 2.9%, while survey participants now see inflation settling at 3.0% five years out, 10 basis points warmer than the initial take.
(Stephen Culp, Lisa Mattackal)
*****
FOR FRIDAY'S EARLIER LIVE MARKETS POSTS:
U.S. STOCKS RISE AS INFLATION READ POINTS TO RATE CUTS - CLICK HERE
U.S. STOCK FUTURES PARE GAINS SLIGHTLY AFTER PCE - CLICK HERE
DON'T CALL IT A ROTATION - CLICK HERE
MARKETS REACTING TO RECESSION THAT ISN'T THERE - CLICK HERE
EARNINGS HELP EUROPEAN INDEXES - CLICK HERE
BUSY BUSY - CLICK HERE
STOCKS ON FIRMER FOOTING AFTER WILD WEEK - CLICK HERE
Wall Street indexes rise https://tmsnrt.rs/4cX0ujQ
Inflation gauges https://reut.rs/3SrTPpE
Personal consumption https://reut.rs/3A1kao8
UMich expectations and PCE saving rate https://reut.rs/3ymU8uP
UMich inflation expectations https://reut.rs/3WEjca8
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