Markets fall as key US inflation data comes out

Stock futures and commodities were among the major markets that fell this week as sentiment cooled on expectations of a key US inflation report.

The Personal Consumption Expenditures (PCE) price index to be released on Thursday shows inflation expected to rise 0.3% from December to January. Core inflation, excluding food and energy costs, was expected to rise by 0.4%.

The PCE price index, released monthly, is designed to reflect changes in consumer behavior and is generally the Federal Reserve’s preferred method of measuring inflation trends.

Stocks, futures and commodities fall

Notable declines ahead of the announcement included U.S. futures, with the Dow Jones index down 119 points, or 0.3%, on Wednesday, while S&P 500 and Nasdaq 100 futures fell 0.3% and 0.5%, respectively.

European stock markets were also weak, falling 0.2%, and the MSCI World Stock Index, which counts stock prices in 47 countries, also fell 0.2%.

Commodity markets also contracted accordingly, ahead of the PCE figures. For example, gold fell significantly on Wednesday. Spot gold fell 0.4%, while U.S. gold futures fell 0.5%.

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

Interest rate cut in 2024?

PCE price index data is thought to have the potential to influence the pace and timing of the Fed’s easing cycle. Initially, the interest rate was expected to be lowered around March 2024, but due to severe inflation, it was revised to June.

“Inflation is still too high. “There can be no assurance that there will be sustained progress in lowering interest rates.” Federal Reserve Chairman Jerome Powell said this in a public statement in January, attempting to quell expectations of an imminent rate cut.

“The decline in inflation figures in the second half of last year is welcome, but we will need continued evidence to build confidence that inflation is moving downward towards sustainability targets,” he added.

Nonetheless, Powell acknowledged the significant improvement in the U.S. employment rate (3.7%, below the long-term average of 5.7%), hailed a “good economy” and confirmed the start of an easing cycle later this year. year.

As a result, investors are on fire as high borrowing costs distort the attractiveness of holding certain assets, especially those without tangible returns, such as commodities.

However, new data shows that orders for “durable goods” fell 6.1% in January 2024. It was the biggest plunge in nearly four years.