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08 02 2016 | by Victor Xing | Economics

June PCE: softer readings as durable goods weigh

June PCE

June PCE came in slightly softer than expected with weakness led by durable goods.  However, the broader index also saw notable declines with softer services inflation.  The headline PCE (0.88% YoY vs. 0.9% consensus) has been hovering below 1% for the past 5 months.  Policymakers had anticipated a gradual return to Fed’s 2% objective, and the current subdued pace will likely raise concerns amongst dovish wing of the Committee (especially given Governor Tarullo’s disagreement with the view that rates and unconventional measures needs to be “normalized” relative to prior cycles’ policy stance).

Financial market reactions on the data release was muted – investors initially focused on the overnight rout in global sovereign bonds, which was kick-started by yesterday’s $20 billion debt issuance by Microsoft to fund its LinkedIn acquisition.  BOJ’s inaction over further sovereign bond purchases had also continued to weigh on market sentiment.  The subsequent decline in oil prices (now trading with a $39 handle) then fueled a rates rally and reinvigorated long-end of the curve (second half of the year are generally bearish energy following the summer driving season, and the pressure to reprice is therefore not unexpected).  Nevertheless, upcoming market directions will be set by BOE policy decision on August 4th, as well as July Payrolls the day after (please refer to our client note sent on July 31st).

June PCE, month-over-month change:

  • Headline PCE at 0.10% MoM vs. 0.2% survey and 0.17% prior
  • Core PCE at 0.07% MoM vs. 0.1% survey and 0.17% prior
  • Services inflation at 0.15% MoM vs. 0.27% prior
  • Durable goods inflation at -0.66% MoM vs. -0.26% prior
  • Goods inflation flat vs. -0.02% prior
  • Energy goods and services at 1.46% MoM vs. 1.42% prior
June PCE MoM
June PCE MoM changes

June PCE, year-over-year change:

  • Headline PCE at 0.88% YoY vs. 0.9% survey and 0.94% prior
  • Core PCE at 1.57% YoY vs. 1.6% survey and 1.63% prior
  • Services inflation at 2.20% YoY vs. 2.28% prior
  • Durable goods inflation at -2.18% YoY vs. -1.80% prior
  • Goods inflation -1.80% YoY vs. -1.79% prior
  • Energy goods and services at -10.04% YoY vs. -10.74% prior
June PCE
June PCE YoY changes

Next article07 27 2016 | by Victor Xing | Central Banks

July FOMC: a less-dovish pivot as communicated