Market Wrap – Core PCE comes in hot

The VIX jumped to nearly 5% today as risk came back on the table due a much higher than expected PCE number, setting up a possible 50-basis point hike at the next Fed meeting.

The US core PCE price index, the Federal Reserve’s preferred gauge to measure inflation, rose by 4.7% annually, higher than 4.6% in December and surpassed market expectations of 4.3%.

This number was also backing signals from Fed policymakers that interest rates must be higher for longer to tame unsustainable price growth.

Core PCE prices in the US, which exclude food and energy, jumped by 0.6% month-over-month in January of 2023, the most since August, and above market estimates of 0.4%.

Also Personal income 0.6% versus 1.0% expected. Last month 0.3% revised up from 0.2%. Personal consumption real was at 1.1% versus -0.3% last month.

Personal consumption adjusted 1.8% versus 1.3% expected. Last month this was 0.1% versus -0.2% previously reported. Again more signs of inflation here.

In terms of risk trades the major averages were crushed today, with nearly 2 percent losses seen across the Dow Jones Industrial Average, the Nasdaq and S&P500.

The other notable risk trade was the US dollar as the major and minor tumbled broadly against the buck. Commodity related currencies were also hit.

Other data was also release today during the US session in terms of housing data and sentiment from the US. US new home sales came in at 620,000 versus 670,000.

The University of Michigan Consumer Expectations subindex in the United States was revised higher to 64.7 points in February of 2023 from 62.3 points in the preliminary estimate and 62.7 in January.

Inflation expectations in the United States compiled by the University of Michigan stood at 2.9% in February of 2023, unchanged from the previous month and in line with preliminary estimates.