US core PCE inflation remains at 2.8% y/y in March

The Fed’s preferred measure of underlying US inflation, so-called core PCE, rose 0.3% m/m in March. The January and February core PCE prints were also revised slightly higher. On an annual basis core PCE inflation rose 2.8% in March, unchanged from February but marginally higher than consensus expectations for a 2.7% gain. There was also a robust rise in US personal spending in March, rising 0.5% m/m for a second consecutive month. The outturn was higher than the 0.3% increase that had been expected, pointing to still-strong economic activity. The stickiness seen in the Fed’s preferred inflation gauge, together with the robust inflation-adjusted spending data further reaffirms our view that the FOMC is unlikely to begin cutting rates until September.

The final reading of the University of Michigan sentiment survey for April recorded a value of 77.2, falling from 79.4 in March. The current conditions component fell to a value of 79 from 82.5 in March, while the expectations component declined to 76 in April from 77.4 the month prior. There was also an upward move in households’ one-year ahead inflation expectations, which rose to 3.2%, up from 2.9% in the March survey.

In contrast, Eurozone consumer expectations of inflation declined marginally in March, according to the latest ECB poll. Expectations of one-year ahead inflation fell to 3% from 3.1% in February, leaving the metric at its lowest level since the end of 2021. Three-year ahead expectations remained unchanged from February, at 2.5%.

Today’s Economic Data and Events

• 13:00 EC consumer confidence (Apr). Forecast: -14.7
• 16:00 GE CPI (Apr). Forecast: 2.3% y/y

Fixed Income

• The 10yr US treasury yield declined by 4bps on Friday to 4.663%, after hitting a high on Thursday on the back of significantly higher than expected q/q core PCE in Q1. Although separate monthly data out on Friday showed that core PCE inflation remained at 2.8% y/y in March, markets appear to have taken comfort in the outturn being only marginally higher than expected. Yields on 10yr US treasuries remained 4bps higher on a week-on-week basis. Yields on the 2yr closed the day only fractionally lower on Friday and were also broadly unchanged over the week at 4.9934%.
• Yields on major European bonds were generally lower on Friday. The UK 10Yr gilt, fell 4bps to reach 4.3232% on Friday, but remained 9bps higher week-on-week. The 10yr bund yield also ended Friday lower, declining 6bps to 2.574%.

FX

• The US dollar gained against a basket of peers on Friday, with the dollar spot index increasing 0.3%, as core PCE inflation data continued to point to a degree of price stickiness in the March outturn.
• EURUSD fell 0.34% to 1.0693 and GBPUSD declined 0.17% to 1.2493. The Japanese Yen fell to a 34 low against the dollar, with USDJPY gaining 1.72% to end the trading day at 158.33. The move was driven by the BoJ’s decision to keep interest rates unchanged on Friday, with many investors expecting authorities to intervene in currency markets on the back of the Yen’s slide.
• Commodity currencies were more mixed on the day. AUDUSD gained 0.23% to 0.6533, NZDUSD fell 0.13% to 0.594, and USDCAD rose 0.1% to 1.3671.

Equities

• US equity indices saw sharp gains on Friday, in part driven by strong earnings data from both Alphabet and Microsoft. The S&P 500 rose 1% on Friday, ending the week 2.7% higher. The NASDAQ gained 2.03% on the day, gaining 4.23% week-on-week. The Dow Jones also ended the day up, gaining 0.4% on Friday.
• European equities also saw solid gains, both on the day and on a week-on-week basis, driven by strong earnings data. The Eurostoxx 50 gained 1.37% on Friday, ending the week 1.8% higher. The FTSE 100 rose 0.75% on Friday, gaining 3.09% week-on-week, for its strongest weekly gain since September 2023. The CAC 40 and the DAX gained 0.9% and 1.4% on Friday, respectively.
• Locally, the DFM fell 0.52% while the ADX closed marginally higher on Friday.

Commodities

• Oil prices rose on Friday, with geo-political tensions remaining high. Brent futures rose 0.55% to USD 89.5/b, while WTI added 0.34% to USD 83.85/b.