As the market’s concerns about the Fed’s policy prospects have eased, and consumer stocks’ earnings reports have been favored, U.S. stocks rebounded sharply overnight, and this week is expected to end the weekly losing streak.
Can U.S. stocks continue to sing tonight? Investors will need to keep a close eye on the Fed’s favorite inflation gauge, the core PCE price index and the University of Michigan’s consumer confidence index. So what is PCE, consumer confidence index? What impact do they have on the market? What are the market expectations?
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What are PCE and Consumer Confidence Index?
The PCE , known as the Personal Consumption Expenditure Price Index, was adopted by the Federal Reserve in 2002 as the main measure of inflation. In 2012, the Fed set the core PCE annual growth rate of 2% as the long-term inflation target, and since then the PCE has been directly quantitatively linked to monetary policy.
The University of Michigan Consumer Confidence Index is a measure of the level of consumer confidence in economic activity. It is a leading indicator because it predicts consumer spending, which is a major part of overall economic activity.
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What impact do they have on the market?
Consumer spending accounts for nearly 70% of U.S. economic activity and is the main driver of U.S. economic growth.
The higher the personal consumption expenditure in the United States, the higher the amount of personal consumption expenditure and the better consumption power, which is generally considered to represent a booming economy and the more optimistic about the stock market; if the US personal consumption expenditure is low, it means that the amount of personal consumption expenditure and consumption power is reduced, generally Think the economy is poor and the stock market may decline.
The correlation between the University of Michigan consumer confidence index and consumer spending is very strong.
If consumer confidence rises, the gold and bond markets see it as negative; the dollar and stock markets generally see it as positive. The dollar exchange rate usually seeks hints from the Fed. If consumer confidence rises, it means consumption growth, the economy is stronger, the Fed may raise interest rates, and the dollar will strengthen accordingly.
Consumer attitudes and spending patterns are often the primary influence on stock and bond markets. For stocks, strong economic growth means healthy growth in corporate profits and higher stock prices.
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What are the market expectations?
The release of the PCE data coincides with a warmer market sentiment. After the Fed recently released the minutes of its May meeting, the focus of Wall Street’s discussion changed from “50 basis points of interest rate hikes in June and July” to “whether it is possible to slow down or even suspend interest rate hikes in September”, and market sentiment also changed to a certain extent. for optimism.
If the PCE data is weak tonight, it may strengthen the market’s hopes for the Fed to slow down the pace of interest rate hikes in the second half of the year to a certain extent. However, if the PCE data shows that inflation is hotter than expected, it is likely to dash Wall Street’s hopes.
At present, the market generally expects that both income and expenditure will grow at a healthy rate last month. The core is how much inflation will affect it and whether it will usher in a turning point. As the Fed’s most concerned inflation indicator, the agency predicts that the core PCE growth rate will drop to 4.9% in April, down 0.3 percentage points from March. This suggests that inflationary pressures may peak in the first quarter of this year.
Charlie McElligott of Nomura Securities believes that the Fed’s favorite inflation measures, especially the April core PCE deflator released tonight, may be a “false” signal. Even Nomura’s hawkish forecast (above Wall Street’s consensus) suggests that April PCE is skewed to the downside risk more than expected. But the bank also said that the next CPI data has unexpected upside potential, which could definitely lead to a violent shock in the interest rate market.
In addition, the Michigan consumer confidence index will remain in focus, with the market forecast unchanged at 59.1.
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