All articles 190

05 31 2016 | by Victor Xing | Capital Markets

April PCE: strong gains in energy and goods

April PCE and rates market reactions

April PCE came in on-consensus as WTI crude prices rose from $36/bbl as of late March to $45/bbl by month-end to lift energy goods and services.  Higher commodity prices (seen in iron ore) also dampened pass-through dis-inflation pressure, as strength in PCE goods and durable goods exceeded that of PCE services inflation, which remained firm at an impressive 0.217% MoM.

April PCE
Firmer global commodity prices served as a tailwind for a rise in PCE goods and energy indices

Rates market initially weakened a touch, but investors quickly shifted gears to short cover as Friday’s Yellen speech delayed institutions’ monthly re-balancing flow, and yesterday’s Asia and European sessions were too illiquid for large asset managers to participate.  In a way, pent-up buying pressure had dominated today’s market reaction despite encouraging sub-components in the latest PCE.

April PCE
Rates market rallied out of the data release on technical re-balancing flows and concerns over Brexit (polls show 52-48 lead for Leave)

Additionally, the disappointing manufacturing data (anecdotal comments in the Dallas Fed Manufacturing Survey was surprisingly downbeat), softer Chicago PMI and Consumer Confidence did manage to offset the above-consensus Consumer Spending (1.0% vs. 0.7% survey).

Breaking down the April PCE

Month-over-month:

  • Headline PCE at 0.307% MoM vs. 0.3% consensus and 0.061% prior
  • Core PCE at 0.171% MoM vs. 0.2% consensus and 0.058% prior
  • Energy goods and services at 3.792% MoM vs. 1.112% prior
  • Services at 0.217% MoM vs. 0.163% prior
  • Durable goods at 0.064% MoM vs. -0.357% prior
  • Goods at 0.497% MoM vs. -0.16% prior
April PCE
April PCE saw a broad-based rebound in the energy and goods sector (laggards of the aggregate index)

Year-over-year:

  • Headline PCE at 1.092% YoY vs. 0.848% prior
  • Core PCE at 1.605% YoY vs. 1.591% prior
  • Energy goods and services at -8.076% YoY vs. -12.721% prior
  • Services at 2.180% YoY vs. 2.130% prior
  • Durable goods at -1.696% YoY vs. -1.609% prior
  • Goods at -1.167% YoY vs. -1.805 prior
April PCE
PCE services continue to lead the aggregate index

 

 

Next article05 27 2016 | by Victor Xing | Central Banks

Yellen and a cautious path to higher rates