- US January PCE core inflation 4.7% vs 4.3% expected.
- US January new home sales 670K vs 620K expected
- UMichigan consumer sentiment for February 67.0 versus 64.9 last month (66.4 preliminary)
- Fed's Mester: Inflation risks still tilted to the upside
- Mester: Fed will need to go above 5% and stay there for awhile
- Feds Mester: Still think we need to be somewhat above 5%. Inflation is still too high.
- Fed's Collins: Recenf US data confirm case for more rate hikes
- Fed's Bullard: The current situation may fall under rubric of 'credible' disinflation
- Feds Jefferson: Wage growth is running too high to be consistent with 2% inflation
- Dallas Fed January trimmed mean PCE price idnex +6.3% vs +4.0% prior
Markets:
- S&P 500 down 44 points to 3975
- US 10-year yields up 6.6 bps to 3.95%
- WTI crude oil up $1.19 to $76.58
- Gold down $11 to $1811
- USD leads, JPY lags
Friday's PCE inflation report certainly didn't cool worries about rising prices as all the main numbers in the report aside from income ran hot. The market reaction was more of what we've been seeing lately -- US dollar strength.
The data helped the dollar break through some resistance levels as it climbed to the highs of the year on most fronts (with GBP as a notable exception). AUD/USD broke through the 200-day moving average and fell to 0.6726, closing near the lows of the day and at the worst levels since early January.
USD/JPY continued to run and has now nearly filled in the December gap from the BOJ surprise. What's interesting is that despite the rout in stocks, the yen was the worst performer today. That's an indication the market is pricing in better global growth and higher rates everywhere. That's a theme to watch in the week ahead as the calendar turns.
EUR/USD fell for the fourth consecutive day and is approaching the early-January low of 1.0479. The dollar is getting a broad lift from chatter about higher Fed rates. The derivatives market hinted at 5.41%, which is a decent chance of 5.50-5.75% this year while US 2s hit 4.81%, which is the highest close since 2007 and an enticing risk-free parking spot for two years.
It wasn't a complete whitewash for the dollar though, as USD/CAD fell 60 pips from the highs as oil prices climbed to finish the week unchanged. We're at the point where commodities and other growth-sensitive assets have to make a decision about whether to cheer a better near-term outlook or cower at the thought of higher central bank rates and a potentially recession in 2024.
Have a wonderful weekend.
