Market 04/26: March PCE confirms prolonged inflation trend

March PCE up: confirms prolonged inflation trend

Fed's preferred inflation gauge rises sharply in March, raising concerns of inflation rebound

Compared to the same period last year:

Headline PCE: up +2.7% YoY (> estimate 2.6%).
Core PCE: up +2.8% YoY (> estimate 2.6%).

Compared to previous month:

Headline PCE and Core PCE: both up +0.3% MoM (in line with est.).

Core PCE growth over the last 3 months +4.4% (annualized).

Services PCE growth drives rise in core and supercore PCE: largest increase from transportation costs

Services PCE growth reaches +0.3% MoM.

March PCE “supercore” index (core services ex-housing) up +0.39% MoM after sharp drop last month, equivalent to +3.5% YoY.

Of which, transportation services rises sharply +1.6% MoM, largest increase since Dec 2022 due to public transportation + motor vehicle rental services.

Income-spending-savings trend shows consumer confidence despite depletion of excess Covid-era savings

Consumers borrowing + reducing savings to continue increasing spending (exceeding income growth).

Despite still high wage growth:

Government wages: up +8.5% YoY (> previous 8.3%).
Private wages: up +5.5% YoY (> previous 5.4%).

Then spending growth was even higher than income growth:

On a year-over-year basis, March spending growth far exceeded the sluggish income growth.

Just in March:
- Personal income only increased +0.5% MoM (in line with est.).
- But personal spending increased to +0.8% MoM (> est. 0.6%).

Savings rate fell from 3.6% to just 3.2% - the lowest since November 2022.

However, consumer credit remains high, exceeding the record 1.1 trillion USD despite borrowing rates over 25%.

Market now expects only 1 rate cut this year.

UMich survey: April consumer sentiment lower than est.

UMich April consumer confidence index reached 77.2 (est.: 77.9, previous: 77.9).
Consumer expectations reached 76 (est.: 77, previous: 77.4).

Per revised data: Consumers expect higher inflation.
- 1-year inflation expectations (green): up to 3.2% (previous 2.9%).
- 5-10 year expectations (orange) unchanged at 3% (previous: 2.8%).

Crypto market: Half a billion USD Ethereum long positions at risk of liquidation

510 million USD Ethereum long positions at risk of liquidation due to concerns SEC rejects Ethereum ETF approval application in May.

Pantera Capital raises 1 billion USD for crypto investment fund.

Company earnings reports: Alphabet, Microsoft, Intel, Exxonmobil, Chevron

Alphabet ER: Revenue grows fastest since early 2022

Revenue: up +15% YoY, reaching 80.5 billion USD (> est. 1.8 billion USD).
Operating margin: 32% (+7% YoY).
EPS: 1.89 USD (> est. 0.38 USD).
Alphabet pays first dividend of 0.20 USD, repurchases 70 billion USD in shares.

Google Cloud:

Revenue: up +28% YoY, reaching 9.6 billion USD.
Operating margin: 9% (+7% YoY).
YouTube ads: up +21% YoY to 8.1 billion USD.

Microsoft ER: Azure strong growth thanks to AI

Revenue: up +17% YoY, reaching 61.9 billion USD (> expected 1.0 billion USD).
Gross margin: 70% (unchanged YoY).
Operating margin: 44% (+2% YoY).
EPS: 2.94 USD (> expected 0.11 USD).
Azure +31% YoY fx neutral (ignoring FX fluctuations).

Intel ER: Stock plunges after current quarter forecast cut

EPS: 18 cents (> expected 14 cents).
Revenue: 12.72 billion USD (< expected 12.78 billion USD).
- Chip sales reached 7.5 billion USD, up +31% YoY.
- Intel Foundry revenue reached 4.4 billion USD, down -10% YoY.

Q2FY2024 outlook:

EPS: 10 cents (< estimate 25 cents)
Revenue: 13 billion USD (< estimate 13.57 billion USD).

Intel stock drops nearly 9% after earnings report.

ExxonMobil and Chevron ER: Impacted by natural gas prices and declining refining margins

ExxonMobil:

Revenue: reached 83.08 billion USD (beat expectations but lower than previous 86.56 billion USD).
Earnings: down 8.2 billion USD (vs 11.4 billion USD last year).
- … due to lower refining margins and natural gas prices.
EPS: down 2.06 USD (vs 2.79 USD last year).

Chevron:

Revenue: 48.72 billion USD (< expected 50.66 billion USD).
Earnings: 5.5 billion USD (< previous 6.6 billion USD).
- … due to lower refining margins and natural gas prices.
EPS: 2.97 USD (< previous 3.46 USD).

Natural gas prices down sharply 37% this year due to oversupply.
Chevron and Exxon are disputing Hess's stake in Guyana oil block. Deal expected to close in 2024.

Some other news:

Atlanta Fed's GDPNow forecasts Q2/2024 GDP at 4.9% QoQ.

JPY hits 34-year low after BoJ keeps rates unchanged with no market intervention moves.
- FYI: Viet Hustler's Macro Economics article this weekend will analyze BOJ actions in more detail.