The big event of the week was the US core PCE data. The core PCE is the Fed’s favored measure of inflation. Expectations were for 0.3% increase. The actual increase rounded to 0.2% for the core measure. In reality, the unrounded number was 0.249% just under the number needed to round to 0.2%. As a result the year on year measure came in as expected at 2.8% for the cor PCE. Mean when the headline number came in at 0.3% as expected and the year on year measure came in at 2.7%.
Markets interpretation was that it was good enough to keep the Fed on pace for a potential cut by the end of the year. However, it would still take a couple of other months of lower prices.
The Fed’s target of 2% mathematically requires month-to-month numbers of less than 0.2%. The unrounded 0.249% is okay but it’s not less than 0.2%. Hopes are that shelter costs will decrease over time. However, Fed officials are not confident of a 2% number by the end of the year, and more hopeful that at the end of 2025, the 2% target can be reached. That is a long time from now.
Nevertheless, yields moved lower today.
- 2-year yield 4.876%, -5.2 basis points
- 5-year yield 4.508%, -6.2 basis points
- 10-year yield 4.502%, -5.1 basis points
- 30-year yield 4.650%, -3.5 basis points
For the trading week, the 2-year yield fell -6.9 basis points, while the 10-year yield rose +3.7 basis points as the yield curve steepened (although still stayed negative at -22.7 basis points).
For the month of May, the 2-year yield fell -16.0 basis points while the 10-year yield fell -18 basis points.
In the currency market today, the US dollar fell but was overshadowed by the JPY decline. The strongest currency was the NZD and the CAD. Next week the Bank of Canada is expected to lower rates by 25 basis points when the central bank meets on Wednesday. Today Canada GDP data for the first quarter came in weaker than expected at 1.7% versus 2.2% estimate. The Canadian dollar still moved higher despite the weaker data.
The strongest to weakest of the major currencies
Looking at some of the major currency pairs technically:
- The EURUSD founds for buyers against its 100 day moving every 1.0807 in the Asian session. Surged above its 100 and 200 hour moving averages at 1.0840 during the European morning session. Peaked between 1.0876 and 1.0887 swing area soon after the PCE data, and then rotated back down to retest its 100 and 200-hour moving averages, finding support against those levels. Those moving averages at 1.08405 will be the key barometer going into the new trading week. The ECB is expected to cut rates next week.
- The GBPUSD also traded up and down in trading today, but is ending the week above its 100 hour moving average 1.2739 and is 200 hour moving average 1.2731. Those moving averages will be the GBPUSDs key barometer in the new trading week.
- The USDJPY is also closing above its 100 and 200-hour moving averages after volatile up-and-down price action today. It’s 100-day moving average is at 157.05. It’s 200-hour moving average is at 156.88
For May, the DXY index fell -1.59%.. Looking at the major currencies versus the US dollar, the USD fell vs all the major currencies in May:
- -1.72% versus the EUR
- -0.35% versus the JPY
- -1.99% versus the GBP
- -1.87% versus the CHF
- -1.10% versus the CAD
- -2.76% versus the AUD
- -4.31% versus the NZD
In the US stock market today, late day buying erased earlier declines. The Dow industrial average rebounded and at its best trading day of the year. The major indices all closed higher for the month of May, but were down for the trading week. The S&P and NASDAQ index snapped five-week winning streaks.
For the trading week:
- Dow Industrial Average average fell -0.98%
- S&P index snapped a 5-week win streak with a decline of -0.51%
- NASDAQ index snapped its five week win streak with a decline of -1.10%
The story was different for the month of May:
- Dow industrial average rose 2.3%
- S&P rose 4.8%
- NASDAQ index rose 6.88%, its largest gain in 2024 and since November 2023
- Russell 2000 rose 4.87% its largest gain since February 2024
Next week in addition to the ECB and Bank of Canada rate decision where both central banks are expected to cut rates by 25 basis points, the major focus will be on the US jobs report on Friday, where estimates are for a gain of 185K. The unemployment rate is expected to remain steady at 3.9%. The US jobs report will be previewed by the traditional ADP, JOLTs and employment readings from ISM/PMI manufacturing and services data. Focus will also be on the inflation measures from those monthly PMI data.
In addition to Canada’s rate decision, they will release their employment statistics on Friday as well.
