Written before the core PCE is announced
At 8:30 PM Beijing time tonight, the U.S. core PCE data for May will be announced. This data is also the inflation figure that the Federal Reserve is most concerned about. The inflation rate that Powell has been talking about reducing to 2% refers to the annual rate of core PCE.
Therefore, core PCE represents the most important parameter for the Federal Reserve in controlling interest rates.
Recently, there has been a significant drop in the last 24 hours, although this has been affected by Micron's earnings report, the larger reason is based on the Fed's interest rate hike expectations, the rising expectations for U.S. inflation, and today’s core PCE data announcement.
From the data, the core PCE annual rate for last month was 3.3%, the market expectation is 3.4%, and the Cleveland Fed's forecast is 3.3%. So if the final announced data is — —
less than or equal to 3.3%, it indicates that U.S. core inflation has not continued to rise, which means that the Fed may not need a very aggressive interest rate hike strategy, especially since the war between the U.S. and Iran has ended. The price of WTI is only $5 higher than before the war, which could make the market optimistic.
If it equals 3.4%, although inflation has still risen, the increase is within the market's expectations, and it isn't much. Considering the end of the U.S.-Iran conflict and the reduction in WTI prices, the market may break free from the strong pessimism of multiple rate hikes.
If it is greater than 3.4%, it indicates that the rise in oil prices has still transmitted to U.S. inflation and exceeded market expectations. Even if the Fed does not intend to raise rates, the market will continue to scare itself, which is not good news for the current risk market.
In short, if inflation is below 3.4%, the market may turn optimistic. If it is 3.4%, the market’s pessimism may not intensify. If inflation exceeds 3.4%, the market's risk aversion may continue to escalate.
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