Market 06/28: May PCE reinforces expectations for Fed rate cut

PCE inflation slows in May reinforcing Fed rate cut expectations

PCE continues to decline: confirms effectiveness of interest rate policy.

Headline PCE: up +2.6% YoY (in line with estimates | previous month: +2.7%).
Core PCE: up +2.6% YoY (in line with estimates | previous: +2.8%) - lowest increase since early 2021.

→ Overall trend still declining.

May PCE shows little change from previous month:

Headline PCE: unchanged 0% m/m (in line with estimates | previous +0.3%).
Core PCE: up +0.1% MoM (in line with estimates | previous +0.3%).

Durable goods prices in strong deflationary trend:

Despite growth in service prices, declining goods prices offset keeping overall PCE unchanged.

Year-over-year, durable goods prices falling at strongest rate in a decade.

Supercore PCE growth (core services ex-housing) up +0.1% MoM - 49th consecutive monthly increase.
- …mainly due to healthcare costs surging.

Year-over-year, this index up +3.4% MoM (previous +3.5%).

Spending growth lower than income growth - savings trending up: People tightening budgets to combat inflation

Income: up +0.5% MoM (above estimates +0.2%).
Spending: up +0.2% MoM (below estimates +0.3%).

On a year-over-year basis, May spending confirms slowdown trend, while income growth not overly volatile.

Government wage growth remains high:
- Government wages: up +8.5% YoY (previous 8.4%).
- Private wages: up +4.5% YoY (previously 4.2%).

Savings rate trends slightly up to 3.9% - highest level since January.

Market reaction:

Most of the market still maintains the view of a cut in September.

UMich survey: Inflation expectations down (June revised data)

UMich consumer sentiment index for June revised up to 68.2 (previously: 65.6).
Consumer expectations reach 69.6 (previously: 67.6).

Inflation expectations revised down:
- 1-year inflation expectations (blue): down to 3% (previously 3.3%).
- 5-10 year expectations (orange) unchanged at 3% (previously: 3.1%).

Consumers' average stock market investments rise to record high in June.

Fed officials' statements:

Fed Daly: Inflation is cooling, however it's too early to conclude how to adjust interest rates.
Fed Barkin: Not considering rate cuts at the current time.

US presidential election: Market predicts Republican dominance

Donald Trump's win probability surges to 63% after last night's debate….
- …while Biden drops sharply (from 48% to 37%).

Market predicts probability of Biden withdrawing from the election at 43% - more than doubled since after last night's debate.
- However, according to CNBC, Biden commits to holding the second debate in September.

Markets shaken after the debate:

USD highest since November.

S&P 500 officially hits new record high.
- …as Trump's victory could pave the way for corporate tax cuts → beneficial for the stock market.

Chicago PMI surges unexpectedly

Chicago PMI surges after deep drop last month, reaching 47.4 in June (estimate: 40 | previous month: 35.4)
- New orders and employment decline.

NIKE ER: Quarterly sales forecast down, warning of weakening China market

Revenue: down -2% YoY, reaching 12.6 billion USD (250 million USD below forecast).
Non-GAAP EPS: 1.01 USD (beat forecast by 0.17 USD).
Inventory: down -11% YoY, reaching 7.5 billion USD.
Wholesale revenue: up +5% YoY, reaching 7.1 billion USD.
Direct revenue: down -8% YoY, reaching 5.1 billion USD.
FY2025 revenue forecast down.
- … due to declining China sales.

NKE stock plunges after disappointing earnings report.

Other news:

Apple increases iPhone shipments in China by 40% after sharp price cuts.
- Apple loses market share in China to Huawei.

Tech sector performance vs. market at levels matching March 2000 peak.

Hedge funds selling off tech stocks again.

Fed's balance sheet shrinks by 21.4 billion USD, liquidity declines for 2 consecutive weeks: money supply is decreasing.

Yen continues to fall to alarming levels (USD/JPY ~ 161).

Yen is having the worst performance among G-10 currencies this year.

Xi Jinping calls for building a “bridge” for the global economy, as Beijing struggles with economic/security disputes with neighboring countries and world trade partners.