Markets Wait On The Core PCE Inflation

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US indices marked fresh record highs yesterday as the White House inked a bipartisan infrastructure package. European stocks remain range bound and had a mixed open in early trade Friday. US benchmark 10-Year yields trade a little under 1.5% and gold is stuck in the range of the last week at $1,780. Markets seem to be comfortable with the Fed’s position on inflation, but we are still waiting for a breakout in yields to really shake things up. For now, the path of least resistance is up, but there is an air of complacency. 

The big release today is the core PCE inflation print – the Fed’s preferred gauge of inflation. The core PCE deflator is expected at 3.4% year-on-year, up from 3.1% the month before, though the month-on-month is expected to slow to 0.6% from 0.7% the previous month. As before, it’s the month-on-month numbers that really count and tell us whether it’s as transitory as the Fed is telling us. Fed speakers on the roster today to jawbone any hot inflation reading include Kashkari, Mester, Rosengren and Williams. There’s an EU Council meeting today, too. 

Deliveroo (LON:ROO) shares jumped yesterday after a court in the UK ruled its drivers are self-employed. It certainly removes a notable headwind to the stock as classing riders as employees would in all normal circumstances lead to higher costs. BuzzFeed, the digital media company, said it plans to go public via a SPAC merger targeting a $1.5 billion valuation. Nike (NYSE:NKE) shares jumped 14% in after-hours trading following better-than-expected quarterly results. The company reported earnings of $0.93 per share, about twice the expected number on revenues of $12.34bn, more than $1bn ahead of expectations. Digital sales were up 147% from two years ago as the direct-to-consumer move pays dividends. Adidas (DE:ADSGN) and JD Sports (LON:JD) both rose 4% in early trade this morning on the read across. Shares in the big US banks also rose in the after-hours trading after the Federal Reserve gave the 23 largest institutions a clean bill of health from the annual stress tests. It means banks will be able to carry out large scale share buybacks and resume dividend payments.  

The Bank of England stopped the pound from taking out $1.40 after it sounded calm over what it thinks will be a transitory phase of inflation. GBP/USD remains tied to the 1.390 level 

The Bank noted that “developments in global GDP growth have been somewhat stronger than anticipated, particularly in advanced economies” and “global price pressures have picked up further, reflecting strong demand for goods, rising commodity prices, supply-side constraints and transportation bottlenecks, and these have started to become apparent in consumer price inflation in some advanced economies”.   

However, whilst raising its inflation forecast to hit 3%, it noted that “financial market measures of inflation expectations suggest that the near-term strength in inflation is expected to be transitory”. The BoE statement added: “The economy will experience a temporary period of strong GDP growth and above-target CPI inflation, after which growth and inflation will fall back.  There are two-sided risks around this central path, and it is possible that near-term upward pressure on prices could prove somewhat larger than expected.” 

Meanwhile UK consumer confidence failed to improve from last month – we can probably ascribe the failure to full restore freedoms – or at least expectations among the population that rising cases were going to make the Jun 21st date unlikely.  

Andreessen Horowitz has launched a $2.2 billion crypto fund – the largest yet. The firm’s Katie Haun told CNBC on Thursday that China is ‘all in’ on crypto but only the closed-garden version they are creating, not Bitcoin or other alt coins. This fits in with the concept backing the bear thesis on Bitcoin and other crypto assets – when regulators and central banks are ready, they’ll crush it – they do not want long term to be in a position where anyone can issue currency. 

Price action on the futures contract remains constrained by the 200-day line and the 50% retracement level.

Bitcoin Futures Chart

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