Morning Bid: PCE test for nervy markets

Morning Bid: PCE test for nervy markets

A look at the day ahead in the US and global markets by Mike Dolan

Wall Street looks set to end the shortened week slightly drunk, with Friday’s May inflation update expected to be decisive after a series of conflicting economic signals and the latest election twist.

The Federal Reserve’s preferred PCE inflation gauge is scheduled to be released early Friday. Consensus forecasts of a 0.3% monthly increase in the core measure and an annual rate stuck at 2.8% are likely still too high for Fed officials to greenlight easing interest rates.

However, a tough week for bonds eased a bit on Thursday after news of a slight downward revision to US first-quarter GDP and inflation figures, falling home sales in April and the increase in unemployment claims.

The Fed’s latest speakers also appeared more optimistic about hopes for continued disinflation.

Without signaling the urgency of a rate cut, New York Fed boss John Williams said rates would be reduced “at some point.” Dallas Fed chief Lorie Logan reiterated that it was still “too early” to consider easing.

However, improving bond market sentiment did little to support stocks. The S&P500 lost 0.6% on Thursday and, dragged down by a nearly 20% post-earnings swoon in Salesforce shares, the Nasdaq lost more than 1%.

Futures remained in the red before the bell on Friday and the VIX Volatility Index remained elevated at around 14.5.

There was no obvious market reaction to the potentially seismic overnight political announcement that Donald Trump became the first U.S. president to be convicted of a crime. A New York jury found him guilty of falsifying documents to conceal a payment to silence a porn star before the 2016 election.

Although polls show that most voters consider the conviction “serious,” markets appear wary of any involvement in the November presidential race, particularly because they have not yet determined what Trump’s return to the White House would mean things for asset markets and the economy. anyway.

And there’s still a lot to say in terms of conviction, appeal and what it means for Trump’s candidacy within the Republican Party. Even in the unlikely event that he faces prison, the Constitution would still not bar him from becoming president.

Foreign markets remained largely influenced by US inflation and the Fed’s situation.

The dollar remained broadly stable, although the euro rose slightly after euro zone inflation in May was slightly higher than expected, although still below 3%.

Although this update is unlikely to contravene the quarter-point interest rate cut expected by the European Central Bank next week, expectations for ECB easing across the the year fell further to 55 basis points.

Eurozone bond markets are now eagerly awaiting revisions to the sovereign ratings of Italy, France, Greece and Ireland later on Friday.

China’s manufacturing activity fell unexpectedly in May, fueling calls for further stimulus as a prolonged housing crisis in the world’s second-largest economy continues to weigh on business, consumer and investor confidence.

Elsewhere, the South African rand fell to a five-week low as this week’s election results showed the African National Congress falling short of a majority, setting the stage for an uncertain period of formation of a coalition.

The Mexican peso was also lower heading into the weekend’s presidential elections.

Oil prices remained stable ahead of Sunday’s OPEC+ meeting, with the producer group working on a complex deal that would allow it to extend some of its deep oil production cuts until 2025.

Separately, the Wall Street Journal reported that Bill Ackman is considering selling a stake in his company Pershing Square, which would value the company at around $10.5 billion.

Key agenda items that could provide direction for US markets later on Friday:

* Personal income and consumption in the United States in April and “core” PCE inflation figures for the month, Chicago business survey in May; Revision of Canada’s first quarter GDP

* Atlanta Federal Reserve President Raphael Bostic speaks

(By Mike Dolan, editing by Gareth Jones mike.dolan@thomsonreuters.com)

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