Market 04/01: February PCE gives mixed signals

February PCE in line with estimates but gives mixed signals

1. Mixed signals on inflation: Headline PCE growth ticks up - Core PCE declines

• February PCE inflation +2.5% Y/Y, as estimated and higher than +2.4% previous month

• Core PCE +2.8% Y/Y, in line with estimates and slightly down from +2.9% previous month

Compared to previous month:

• February PCE +0.3% M/M, (below estimate +0.4% and +0.4% M/M previous month).

• Core PCE +0.3% M/M, = estimate +0.3% and slightly down from +0.5% previous month

Core PCE growth over the last 3 months +3.5% (annualized).

2. Pace of increase in Services PCE and Supercore PCE cools

Services PCE continues upward trend, nondurable goods inflation rises for first time since 09/2023

• February spending on gas and energy drops to 2.36% of total personal consumption - quite low historically

• February Supercore PCE (core services ex-housing) +0.18% M/M - sharp slowdown from previous month's increase, equivalent to +3.33% Y/Y

• Among them, healthcare costs, Financial services and insurance still lead the supercore PCE basket — despite small increases last month.

3. Households reduce savings rate due to higher interest payment costs

Savings rate in February drops to 3.6%, lowest since December 2022

Interest payments on personal debt (excluding mortgage interest) surge to 3% of personal spending - about to surpass 2008 levels

ISM Manufacturing PMI surges across all components to above 50 threshold

March ISM manufacturing PMI rises to 50.3 vs estimate 48.3 & 47.8 previous month (first time above 50 since Sep 2022)

• New orders rise to 51.4 from previous 49.2

• Price rises to 55.8 from previous 52.5

• Employment rises to 47.4 from previous 45.9

Asia: Business confidence in Japan declines, China sees recovery prospects

Japan: Manufacturers' business confidence (Tankan report) gloomy

Large manufacturers' business confidence in Japan for Q1/2024 worse than previous quarter, according to Tankan survey

• Manufacturers' sentiment index for Q1 reaches +11

• Q2 index forecasted at +10

China: Positive economic data shows bright potential of the economy

Average new home prices across 100 cities rose 0.27% M/M in March, the largest increase since July 2021, higher than February's 0.14% rise.

March PMI data quite positive:

• Official March PMI rises to 50.8 from February's 49.1, higher than forecast 49.9

• Caixin manufacturing PMI rises to 51.1 - highest in over 1 year, up from February's 50.9 and above forecast 51

CSI 300 index up 1.6%, strongest gain in 1 month as market more optimistic after highest PMI in 1 year

Commercial real estate (CRE) and credit market: Face significant pressure in the next 3 years

• About 2 trillion USD in commercial real estate debt matures from this year to 2026 and needs refinancing at much higher rates

• Delinquent property tax payments in New York up 30% to 880 million USD - all-time high due to no consequences for non-payment

Companies rushing to issue bonds to lock in rates before US election market volatility

• 606 billion USD in corporate bonds issued YTD, up 40% Y/Y and highest since 1990.

Blue Chip companies borrowed 529.5 billion USD in Q1, highest ever

Crypto market: Merkle becomes next unicorn, HSBC issues Gold Token

• Farcaster parent - Merkle Manufactory, about to become unicorn with latest funding round, valuation up to 1 billion USD

• HSBC launches Gold Token for retail investors in Hong Kong, first bank to issue real-world asset on blockchain

• An investor/institution bought 15519 Bitcoin at 70,000 USD/BTC, total 1.1 billion USD

• UK court approves freezing 6.7 million GBP (8.4 million USD) of Craig Wright's assets to prevent evasion of court costs.

Key events for the week 04/01 - 04/05

1. ISM Manufacturing PMI data - Monday

2. JOLTs job openings data - Tuesday

3. OPEC meeting - Wednesday

4. Fed Chair Powell speech - Wednesday

5. February jobs report - Friday

6. Total 14 Fed officials speaking this week

• Corporate earnings release schedule:

Other news

1. Japan and EU plan cooperation on advanced materials for chips and EV batteries to reduce dependence on China

2. Gold price surges to 2,265.73 USD/oz today - new record, driven by geopolitical tensions and strong demand from China.

3. February construction spending -0.3% M/M vs estimate +0.7% and prior -0.2%, due to weak public spending

4. AT&T stock falls as company says personal data of 73 million customers leaked on dark web

5. S&P Global downgrades Paramount's credit rating to high risk (junk).