Midday Brief – The dollar trades softly ahead of PCE data

Despite a number of important economic releases this afternoon the market action was muted, with the VIX volatility index best representing this as it dropped by over one percent.

The major US stock indices traded largely lower, while the US dollar was mixed with the USDJPY pair trading higher, the GBPUSD pair higher, and the EURUSD pair seeking out marginal gains.

Breaking down the afternoons data, the University of Michigan consumer sentiment for the US was revised higher to 59.7 in December of 2022 from a preliminary of 59.1.

The gauge for expectations was revised higher to 59.9 from 58.4 while the current conditions subindex was revised lower to 59.4 from 60.2. The market reaction was negatable on the release.

Inside the report it showed that inflation expectations for the year were revised lower to 4.4% from 4.6% in the preliminary estimate and the 5-year outlook was revised lower to 2.9% from 3%. 

Also, the Fed’s personal consumption expenditure report for November 2022, and preferred gauge of inflation showed that is PCE core inflation rose +4.7% vs +4.7% expected.

PCE core came +0.2% vs +0.2% expected on a month-on-month basis. The prior reading was +0.2%. Consumer spending and income for November was up with Personal income rising +0.4% vs +0.3% expected.

It is likely that the US Federal Reserve members will see this data as showing that inflation is on the right track, though they will continue to watch the wage data closely.

Durable goods orders in the US, which measure the cost of orders received by manufacturers of goods meant to last at least three years, fell by 2.1% month-over-month in November 2022.

This was the sharpest decrease since April 2020 and well above market forecasts of a 0.6% decline, swinging from the downwardly revised 0.7% increase in the prior month. This could explain stocks slightly downbeat mood this afternoon.

Orders fell sharply for transportation equipment (-6.3% VS 1.9% in October) amid declines in nondefense aircraft and parts (-36.4% vs 4.7%) and defense aircraft and parts (-8.6% vs 18.2%).