US core PCE data 2.9% vs 3% expected, PCE Price Index in line with estimate at 2.6%
Immediate market reaction contained ahead of blockbuster week ahead (FOMC, NFP, mega-cap earnings)
US core PCE showed good progress towards the Fed reaching its desired level of inflation after printing its lowest since figure since Q1 2021. The Fed’s 2% target however, is attached to the PCE Price Index which revealed the difficulty in forcing the overall level of prices lower from here. The 2.6% figure was in line with expectations and happens to be the exact same reading last month – revealing that remaining undesirable price pressures are proving difficult to shake. Overall, inflation is still heading in the right direction and with the help of lower base effects, inflation is expected to continue to ease further.
In the lead up to the PCE data there has been a certain robustness to inflation data in December, not only in the US via the CPI figures but also in Europe and the UK where price pressures failed to drop with the same momentum as previously witnessed and even saw upward surprises on some measures like headline CPI in the US, for example (3.4% vs 3.1 prior).
However, the hotter prices signaled by the US December print is largely being viewed as containing the last of the unfavourable base effects. There is an expectation that disinflation will kick into gear again now that those base effects are mostly behind us now.
The market response was rather contained across the board, with the dollar initially rising ever so slightly higher before pulling back within the intra-day range. Gold witnessed a promising lift immediately after the release, buoyed slightly by the lack of worrying price pressures and a slight move lower in USD.
S&P 500 futures moved higher ahead of the US market open where anticipation builds ahead of major equity releases next week.