The Federal Reserve’s preferred measure of inflation met expectations. The core personal consumption expenditure index (PCE) rose by 0.2% in August as compared with a 0.3% increase in July. On an annual basis, the core measure remained at 2.9% considerably higher than the 2.0% mandated speed limit.
Equites treated the report positively as it offers some relief the status quo remains intact…two more interest rate cuts by year’s end.
A casual observation may be the 2.0% target is a “low priority” with policy makers trying to restore balance between jobs and inflation.
Inflation is not re accelerating nor is it reversing. It is stuck in a defined range.
Similarly, companies are not firing workers, but they are not hiring either. Corporations are also stuck as the uncertainty is great.
This week several top-tier employment indicators are released. What will the data suggest?
Additionally, even though consumer sentiment has waned, spending rose more in August than projected illustrating resilience.
Friday’s date reinforced the narrative that the economy is much stronger than anyone thought, and inflation is well contained albeit about 50% higher than desired levels.
Third quarter earnings season is about to commence. Bloomberg writes the S & P 500 12 month forward price to earnings ratio is about 23, a level that was only broached twice this century…2000 and the summer of 2020 when the Fed reduced rates to zero because of COVID.
While reducing rates in a non-recessionary environment is positive, rates reductions are negative in a rising or stubborn inflationary environment. All amplified by the massive federal debt and the inability of Congress to reduce spending.
Speaking of which, will there be an eleventh-hour compromise to prevent the government from shutting down? The jobs report will be delayed if a shutdown does occur.
Historically such shutdowns are not significant market moving events.
The Treasury curve steepened modestly on Friday as the odds of two interest rate cuts in today’s environment increases the odds of higher long term rates.
The economic calendar is comprised of numerous top tier data points including the JOLTS Job Openings, the ISM Manufacturing and Service statistics, a sentiment survey, various manufacturing data and the BLS labor report.
Last night the foreign markets were up. London was up 0.56%, Paris up 0.15% and Frankfurt up 0.02%. China was up 0.90%, Japan down 0.69% and Hang Seng up 1.89%.
Futures are up about 0.34% as the market believes this week’s labor data will support an interest rate cut. Gold hit an all-time record as the dollar continue to drop in the specter of a government shut down. The 10-year is up 7/32 to yield 4.15%.
