Yesterday's PCE index brought relief to the markets

Markets welcomed the publication of the PCE deflator for the US for January. The results were largely in line with expectations. Following earlier higher CPI and PPI readings, concerns have grown that the Fed's preferred measure of inflation will also show higher numbers.

Stock indices ended the day on a positive note. The dollar lost after the data was released. EUR / USD exchange rate increased to 1,0850 and then fell again to 1,08 in the second part of the day, as a result of the comments of Fed representatives.

The reading was consistent with forecasts

The report on Americans' spending was supposed to be the highlight of the week. Although it caused greater market volatility, it did It wasn't groundbreaking in any way. The PCE deflator decreased to 2,4%. on a year-to-year basis from the ceiling of 2,6 percent. a month earlier. This is what the forecasts indicated. There were no surprises in the result of the core indicator on an annual basis, which decreased to 2,8%. from 2,9 percent previously. However, month-to-month measurements indicate that the disinflation process has slowed down. Base prices increased by 0,4%.

This is the highest result in a year, which confirms that the final stage of bringing inflation to the target will be long and "bumpy". The market valuation of the future path of interest rates in the US has not changed significantly. The market is still giving more than 50%. chances for a reduction in June, but he does not believe in it as strongly as, for example, at the end of 2023.

Visible movement on the debt market

Yesterday's data nevertheless brought some kind of relief. The market was, to some extent, afraid of a negative surprise, i.e. higher results. These concerns increased after January's CPI and PPI turned out to be much higher than forecast. The positive reception of yesterday's information was reflected in increases in futures contracts on US indices at the time of and after the publication.

Ultimately, Wall Street benchmarks gained and performed best Nasdaq Composite, which grew by 0,9 percent, the SP500 was 0,5 percent higher at the end of the day. and the Dow Jones by only 0,1 percent. The dollar lost in the first reaction to the data, but gained in the following hours. The EUR/USD rate, after rising to 1,0850, dropped again to 1,0800 and is currently slightly above this level. There was also visible movement on the debt market. Yields on US government bonds fell, 2-year securities dropped to 4,61%.

Today the attention shifts to the morning PMI indicators for manufacturing from Europe and then to the flash reading of HICP inflation for the euro zone. The common currency may be sensitive to this data. Then, investors' eyes will move again to events overseas. We will receive ISM for industry and consumer sentiment data published by the University of Michigan.

Source: Łukasz Zembik, OANDA TMS Brokers