Market Wrap – PCE inflation moves markets

Stock market continued yesterday’s trend higher as the Core PCE metric came in slightly lower than anticipated, with annual rate, the Federal Reserve’s preferred gauge of inflation falling to 5% from 5.2%.

Core PCE prices in the US, which exclude food and energy, went up by 0.2% month-over-month in October of 2022, below 0.5% in September and less than market forecasts of 0.3%.

Following the release of the US data dump the US dollar index continued to fall broadly. This was mostly due to the continuation of yesterday’s post-Powell speech.

Breaking down the data, Consumer spending and income data for October showed Personal income +0.7% vs +0.4% expected, the prior months reading was at +0.4%

Personal spending fell to +0.8% vs +1.0% expected. It is noteworthy that prior month +0.6% and Real personal spending actually rose +0.5% vs +0.3% the previous month.

Expectations adjusted lower after CPI and this report shows that wasn’t a fluke. The 0.2% m/m rise is right on ‘par’ with 2-3% inflation going forward and that’s a positive development, though it’s just one month and comes after +0.5% in September.

The report notes “widespread decreases in prices for durable goods” while noting that the prices for services increased 0.4% m/m led by food services, accommodations and housing. You can see the rollover in goods here while restaurants and hotels survive.

Jobs data today showed the number of Americans filing new claims for unemployment benefits decreased by 16,000 to 225,000 on the week ending November 26th, compared to market expectations of 235,000.

The 4-week moving average was 228,750, an increase of 1,750 from the previous week’s revised average. On a seasonally unadjusted basis, initial claims fell by 50,512 to 198,557.