Markets Slip as Major US Inflation Data Looms

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Stock futures and commodities were among key markets edging lower this week as investor sentiment cooled in anticipation of a major US inflation report.

The Personal Consumption Expenditures (PCE) Price Index, due to be released on Thursday, is expected to depict a 0.3% increase in inflation between December and January. The uptick in core inflation, which excludes food and energy costs, is anticipated to be 0.4%.

Released every month, the PCE Price Index is designed to reflect changes in consumer behavior, and is generally the Federal Reserve’s preferred method of measuring inflationary trends. 

Dips for Stocks, Futures and Commodities

Notable dips ahead of the release included US futures, with Dow Jones slipping 119 points Wednesday (equivalent to 0.3%), while S&P 500 and Nasdaq 100 futures slid 0.3% and 0.5% respectively.

European stocks also looked bearish and dipped 0.2%, while the MSCI world equity index, which catalogs share prices in 47 countries, also slid 0.2%. 

Commodities markets followed suit and contracted ahead of the PCE figures. Gold, for instance, ticked down substantially Wednesday – Spot gold fell 0.4%, while US gold futures edged 0.5% down.

Silver saw similar price action Wednesday, falling 0.4% to a two-week low.

Interest Rate Cuts Due in 2024?

It is thought that the PCE price index data could influence the pace and timing of the Federal Reserve’s easing cycle. Interest rates were originally anticipated to be cut around March 2024, but sticky inflation has seen this estimate revised to June.

“Inflation is still too high. Ongoing progress in bringing it down is not assured,” said Federal Reserve Chair Jerome Powell in a public statement in January, aiming to cool expectations of an imminent rate cut.

“The lower inflation readings over the second half of last year are welcome, but we will need to see continuing evidence to build confidence that inflation is moving down sustainability toward our goal,” he added.

Despite this, Powell went on to acknowledge the US’ much-improved employment rate (3.7%, down from the long-term average of 5.7%), hailing a “good economy” and all but confirming the commencement of the easing cycle later this year.

Investors are holding fire as a result, as high borrowing costs distort the appeal of holding certain assets, particularly those without tangible yields, such as commodities.

However, the US’ economic outlook took a slight hit this week as fresh data revealed a 6.1% downturn in orders for “durable goods” for January 2024 – the biggest slump in nearly four years.