16 October 2024

US Stocks Rise as Core PCE Inflation Data Indicates Cooling Price Pressures

U.S. stocks opened slightly higher on Friday, buoyed by data indicating cooling inflation pressures, raising expectations for potential Fed rate cuts.

US Stocks Rise as Core PCE Inflation Data Indicates Cooling Price Pressures

U.S. stocks opened slightly higher on Friday, buoyed by recent data suggesting that inflation pressures are easing. This development has increased expectations for potential rate cuts by the Federal Reserve in the near future.

The latest core Personal Consumption Expenditures (PCE) data, which is the Fed's preferred measure of inflation, revealed a year-over-year increase of 2.7% in August, up from 2.6% in July and aligning with market forecasts. However, on a month-to-month basis, inflation rose just 0.1%, falling short of the anticipated 0.2% and the previous month's increase of 0.2%.

In addition to the inflation data, consumer spending also came in lower than expected, registering a 0.2% increase compared to 0.5% in July, while personal income growth was similarly subdued at 0.2%. These figures collectively point towards a cooling of price pressures, which could influence the Fed's monetary policy decisions.

Market analysts are now contemplating whether the Fed will implement an unprecedented 50 basis point rate cut in November, following a similar cut in September. According to the CME FedWatch Tool, there is currently a 52% probability priced in for such a significant reduction.

Looking ahead to next week, the market will focus on a series of U.S. economic reports, including the ISM services manufacturing PMIs and non-farm payrolls. The jobs data will be crucial in shaping expectations for the Fed's next move, with any signs of a cooling labor market potentially unsettling investors.

In corporate news, Costco shares fell after the company reported fourth-quarter revenue that missed expectations. The membership-based warehouse retailer saw a 1% increase in revenue to $79.69 billion, below the forecast of $79.93 billion, although earnings per share (EPS) of $5.29 exceeded predictions.

Conversely, Bristol Myers Squibb's stock surged after U.S. regulators approved the first new schizophrenia medication in decades. The approval of Cobenfy, which does not carry warnings about increased mortality risk, has further bolstered investor confidence in the company.

The Nasdaq 100 has broken out from a symmetrical triangle pattern, surpassing the 20,000 mark and reaching a new six-week high of 20,315. However, the longer upper wick observed in yesterday’s chart and today’s doji candle suggest market indecision. Buyers are aiming to push past 20,315 towards a target of 20,750, while immediate support is identified at 20,000. Should this level fail, the 50-day simple moving average and a declining trendline support at 19,200 will come into play.

The U.S. dollar is experiencing a decline ahead of upcoming inflation data, which could increase the likelihood of a 50 basis point rate cut by the Fed in November. Meanwhile, the EUR/USD pair is rising due to a weaker dollar, despite ongoing concerns regarding the eurozone's economic health. German unemployment rose by 17,000, and eurozone economic sentiment fell to 96.2 from 96.5, indicating a challenging economic environment.

In the currency markets, USD/JPY is falling towards 142 following the election of Iahiba, a proponent of further rate hikes, as Japan's new Prime Minister, defeating rival Takaichi. The prospect of additional rate hikes is strengthening the yen.

Oil prices are stable on Friday but are set to record a significant weekly decline as investors weigh the implications of increased supply from OPEC+, which has overshadowed optimism regarding potential stimulus from China. WTI crude is expected to lose 6% this week due to OPEC+'s decision to boost output in December, amid concerns over weakening demand.

While it remains uncertain whether Chinese stimulus measures will lead to increased fuel demand, they do provide a glimmer of hope for the oil market. The Chinese central bank lowered interest rates on Friday and injected liquidity into the banking system, aiming to steer economic growth back towards its 5% target.