01 July 2024
6 mins clock icon

US PCE slowed in May

By Daniel Richards

In the US, the core personal consumption expenditures (PCE) price index slowed in May, coming in at 0.1% m/m, in line with predictions and down from the 0.3% logged in April (upwardly revised from 0.2% previously). This marked the slowest pace of growth in six months. The headline measure was flat m/m, also down from 0.3% in April. On the other hand, personal income grew 0.5% m/m, higher than the predicted 0.4% and up from 0.3% in April, while spending grew 0.2%. This is encouraging data for the Federal Reserve, suggesting that the ongoing stickiness in inflation can perhaps be managed without seeing income growth eroded. In other US data released Friday, the final print of the University of Michigan sentiment index showed that the fall in US confidence in June was not as great as initially depicted. The index was at 68.2 on the final reading, compared with 65.6 on the first release.

UK Q1 GDP growth was revised up on the final estimate, from 0.6% on the initial print to 0.7%, thereby confirming the economy’s exit from the shallow recession seen at the close of last year. On an annual basis, growth was 0.3%, up from 0.2% on the previous reading. The upgrade was driven by an upwards revision to private consumption, which expanded 0.4% q/q rather than 0.2%, while gross fixed capital formation expanded at a slower pace (0.9% q/q) than initially supposed (1.3%).

UAE petrol prices for the month of July were announced yesterday, with prices at the pump set to fall for the second month running, this time by some 5%. This follows on from a more-than-six% fall logged in June, which will help to ease price pressures in the country in the coming month. Transport accounts for around 10% of Dubai’s inflation basket, with petrol prices making up a fair proportion of that, so this has implications for headline CPI inflation. However, it should be noted that global oil prices have picked up in June so pump prices will likely reflect that next month. Dubai’s annual inflation rate slowed to 3.8% y/y in May from 3.9% in April, and the average inflation in the first five months of the year was 3.6%.

China’s official manufacturing PMI was unchanged at 49.5 in June in data released yesterday, in line with expectations. However, the non-manufacturing index fell short of predictions at 50.5, down from 51.1 the previous month. This was the second month in a row that manufacturing contracted, with new orders weakening, while the non-manufacturing measure confirms that consumer demand remains weak despite some modest stimulus. This morning, the Caixin PMI manufacturing survey for June was released, which by contrast came in above predictions at 51.8, marginally stronger than May’s 51.7 and beating the projected 51.5.

Net foreign assets at Egypt’s commercial banks have turned positive at USD 14.3bn in May, from a negative USD 3.6bn the previous month. This marks a remarkable turnaround from the negative USD 25.5bn averaged over 2023 as a surge in FX inflows, kickstarted by the announcement of the UAE’s USD 35bn investment in Ras el-Hikma, have shored up Egypt’s finances in recent months.

Turkey is hiking electricity prices for households and the services sector this month, with costs rising by 38% for households and between 20% and 38% for services businesses. This will bring renewed upwards pressure on prices just as the central bank hopes that CPI inflation has peaked in May at 75.5% - it forecasts a slowdown to 38% by year-end.

CPI inflation in France slowed to 2.5% y/y in June, in line with predictions and down from 2.6% previously. Inflation also slowed in Spain, down to 3.5% from 3.8% previously, although there was a modest acceleration in Italy, from 0.8% to 0.9%. Germany’s CPI print is due to be released today and is also expected to slow modestly.

Today’s Economic Data and Events

18:00 ISM manufacturing, June. Forecast: 49.2

16:00 Germany CPI inflation, % y/y, June. Forecast: 2.3%

Fixed Income

  • US treasury yields initially fell after the release of the PCE data which showed encouraging signs of slowing price growth, but picked up again through the remainder of the session and by Friday’s close, the 2yr was up 4bps on the day at 4.7535%. This meant that yields were up 2bps on the previous Friday. A similar dynamic played out on the 10yr which ended Friday up 11bps on the day, and 14bps on the week at 4.3961%.
  • Yields on USTs have tracked higher through the first half of the year as expectations of monetary easing from the Fed have been tempered. The 10yr yield is up from 3.8791% on January 1, a rise of 52 bps, while the 2yr has risen 50bps from 4.2499%
  • This week is a quiet one for policy setting, with Poland’s central bank meeting on Wednesday and Romania on Friday. FOMC meeting minutes from its June rate decision will be released on Wednesday.

FX

  • The US dollar index closed up 0.1% against its basket of peers on Friday at 105.87. The greenback has retained its strength over the first half of the year as Fed easing has been pushed back, and has gained 4.5% against its basket of peers over the six-month period.
  • The main story in FX at present remains the Japanese yen which lost 0.7% against the USD last week to close at 160.88. The currency is the worst performing G10 currency so far this year.
  • One of the stronger currencies this year has been GBP which has lost only 0.7% against the dollar over the first half. It closed on Friday at 1.2645. EUR has performed weaker, dropping 3.0% over the year so far, closing Friday at 1.0713.

Equities

  • Asian equity markets were mixed last week, with the Hang Seng ending 1.2% lower and the Shanghai Composite down 0.8%, but with gains in Japan as the Nikkei added 2.8% and the Topix 3.3%, bolstered by the weaker yen.
  • Equity markets were less sanguine in Europe, where all the major indices ended in the red, with France’s CAC marking the biggest drop at 2.0% w/w as investors braced for potential political turmoil. The FTSE 100 dropped 0.9%, while the DAX ended the week 0.4% higher.
  • US markets fell on Friday, leading to w/w losses for the S&P 500 and the Dow Jones, both of which ended the week 0.1% lower. The NASDAQ clung on to gains of 0.2% w/w.
  • The year so far has been largely positive for global equity markets. Bright spots have been the Nikkei, up 18.3% ytd on yen weakness, while the NASDAQ has gained 18.1% as tech stocks, and in particular Nvidia, have performed strongly. The current turmoil in France has led to a 0.9% ytd drop for the CAC but the DAX has gained 0.9% and the FTSE 100 5.6%.

Commodities

  • There was a mixed performance from global oil benchmarks last week. Brent futures ended the week 0.3% lower at USD 85.00/b, while WTI added 1.0% to close at USD 81.5/b.
  • Prices have risen since the start of the year despite persistent concerns around demand strength, the geopolitical tensions have added a risk premium. Brent prices have gained 10.3% ytd, while WTI is 13.8% higher.

Written By

Daniel Richards Senior Economist


There was an error during your feedback!

Your feedback is valuable to us and will help us improve.

Daniel Richards

Related Articles

Subscribe to our newsletter and stay updated on the markets

There was an error during your newsletter subscription!

Please try again to stay updated with all the latest financial news and valuable insights.

Thank you for newsletter subscription!

To stay updated with all the latest financial news and valuable insights.