Spending Secures September

Market Trends - 25/06/2015

Spending data released just minutes ago confirmed the recovery is back on track as the rise in energy prices anchors the inflationary outlook. Spending leapt 0.90% higher, crushing expectations of a 0.70% gain as personal income printed in-line with estimates of 0.50%. When taken into account with initial jobless claims hovering near multi-decade lows and real consumption growing 0.60% in May, the recovery might have found some legs. It is not without doubts with the increasing commentary from sophisticated investors criticizing surging valuations in the equity space. However, evidence of growth from the real economy is always a net positive in the long-run especially as the Federal Reserve works towards normalizing rates and stoking lending which has remained notably absent from spheres excluding student loans, auto loans, and corporate buybacks. Most importantly though the is the PCE indices released at the same time as the data above.

The PCE (personal consumption expenditure) price index is the main measure of inflation tracked by the Federal Reserve instead of CPI and PPI. While simply acting as another way to measure the change in prices of goods and services over time, the metric has lately been driven higher by rising rents and energy prices which have rebounded over the last several months. Although subject to another round of potential downside in crude oil benchmarks owing to renewed output growth, aggregate inflation in other areas is trending towards the longer-term Federal Reserve target of 2.00%. Today’s numbers have more or less assured markets that the Fed’s plans are on track, barring any substantial downturn in macroeconomic data over the next two months. Although the dollar initially gave ground following the announcements, it has since rebounded, pressuring gold lower. The dollar has also risen against the Swiss Franc despite the latter’s resurgent appeal as a haven play. A brief pullback to USD momentum higher has translated to renewed bidding and seen the dollar trend back towards earlier session highs.


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