Morning Bid Americas: PCE test for nervy markets

Pershing Square Holdings

31/05/2024 11:00

A look at the day ahead in U.S. and global markets from Mike
Dolan
Wall Street looks set to end the shortened week slightly punch
drunk, with Friday's May inflation update set to be a decider
after a slew of conflicting economic data signals and the latest
election twist.
    The Federal Reserve's favored PCE inflation gauge is due out
early on Friday. Consensus forecasts for a 0.3% monthly increase
in the core measure and annual rate stuck at 2.8% are still
likely too high for Fed officials to give a green light on
easing interest rates.
    Still, a rough week for bonds calmed down a bit on Thursday
after news that U.S. first quarter GDP and inflation readings
were revised down a touch, home sales plunged in April and
jobless claims ticked higher.
    The latest sweep of Fed speakers also sounded more sanguine
about the hopes for continued disinflation.
    Without signalling any urgency in cutting rates, New York
Fed boss John Williams said rates would be cut "at some point".
Dallas Fed chief Lorie Logan reiterated that it was still "too
soon" to be thinking about easing.
    However, the better bond market mood did little to lift
stocks. The S&P500  .SPX  lost 0.6% on Thursday and, dragged
down by a near 20% post-earnings swoon in Salesforce  CRM.N 
shares, the Nasdaq  .IXIC  lost more than 1%.
    Futures stayed in the red before Friday's bell and the VIX
 VIX  volatility index stayed elevated at about 14.5.
    There was no obvious market reaction to the potentially
seismic political news overnight that Donald Trump became the
first U.S. president to be convicted of a crime. A New York jury
found him guilty of falsifying documents to cover up a payment
to silence a porn star ahead of the 2016 election.
    Although polling shows most voters see the conviction as
'serious', markets seem wary of reading any implications for
November's presidential election race - not least because they
have yet to fix on what a Trump return to the White House would
mean for asset markets and economy anyhow.
    And much has yet to play out in terms of sentencing, appeals
and what it means for Trump's candidacy within the Republican
party. Even in the unlikely event he faced prison, he would
still not be constitutionally barred from becoming president.
    Overseas markets remained in thrall to the U.S. inflation
and Fed picture for the most part.
    The dollar was steady for the most part, although the euro
 EUR=  nudged higher after euro zone May inflation came in
slightly above forecasts - even if still below 3%.
    While the update is unlikely to cut across the European
Central Bank's expected quarter-point interest rate cut next
week, full-year ECB easing expectations slipped back further to
55 basis points.
    Euro zone bond markets now look ahead to sovereign credit
rating reviews for Italy, France, Greece and Ireland later on
Friday.
    China's manufacturing activity unexpectedly fell in May,
keeping alive calls for fresh stimulus as a protracted property
crisis in the world's second-largest economy continues to weigh
on business, consumer and investor confidence.
    Elsewhere, South Africa's rand  ZAR=  fell to a five-week
low as results from this week's election showed the African
National Congress had fallen short of a majority - setting up an
uncertain period of coalition building ahead.
    Mexico's peso  MXN=  was also on the backfoot ahead of the
weekend presidential elections there.
    Oil prices  CLc1  held steady ahead of Sunday's OPEC+
meeting, with the producer group working on a complex deal that
would allow it to extend some of its deep oil production cuts
into 2025.
    In other news, the Wall Street Journal reported that Bill
Ackman is considering selling a stake his Pershing Square firm
that would value the company at about $10.5 billion.
    
Key diary items that may provide direction to U.S. markets later
on Friday:
* US April personal income and consumption and 'core' PCE
inflation readings for the month, Chicago May business survey;
Canada Q1 GDP revision 
* Atlanta Federal Reserve President Raphael Bostic speaks


    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
PCE inflation stays above the Fed's target    https://reut.rs/3WSJm9v
US GDP contributors    https://reut.rs/3KmgiQj
US pending home sales slide    https://reut.rs/3X0fRTm
Trump charges polling    https://reut.rs/4cLcUeO
ECB to release fresh economic projections next week    https://reut.rs/4bV6VTx
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (By Mike Dolan, editing by Gareth Jones
mike.dolan@thomsonreuters.com)
 ((mike.dolan@thomsonreuters.com; +44 207 542 8488; Reuters
Messaging: mike.dolan.reuters.com@thomsonreuters.net))