Morning Seeds • 02/29/2024 - 09:19 AM EST
PCE
In-Line PCE Quells Concerns
Today's release of a comprehensive set of economic data offered a nuanced glimpse into the current state of personal finance and consumer behavior. Notably, PCE reported a monthly increase of 0.3%, precisely in line with economic forecasts, and translates into an annual growth rate of 2.4%. Equally significant, the core PCE index also met expectations with a monthly rise of 0.4%, cumulating in a year-to-date escalation of 2.8%. In the labor market, the number of jobless claims exceeded forecasts, registering at 215,000 compared to the anticipated 210,000. Furthermore, credit card transaction data from Bank of America revealed a subtle decline, suggesting a potential contraction in consumer spending. These indicators, when considered collectively, paint a picture of a static consumption landscape, devoid of significant acceleration. This observation is particularly intriguing given the current market sentiment, which has already assimilated the prospect of three interest rate cuts within the year. The juxtaposition of steady inflation and spending metrics against the backdrop of anticipated monetary easing raises compelling questions about the trajectory of economic policy and its responsiveness to underlying financial currents.
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BOJ
Yen Trend
The Yen broke more decisively below 150 on the back of the BoJ’s Takata’s comments that an overhaul of negative interest rates may be proximal. Takata noted that the BoJ’s 2% price target is “finally coming into sight” and that while it expected to remain accommodative, the BoJ’s ultra-loose policy was no longer needed. Japanese equities are hovering near all-time highs and wage gains have become consistent. We believe the market will focus on April, following the end of the Japanese fiscal year in March, for implementation of any such shift.
Bitcoin
Crypto Correlations
Cross-asset correlations saw an interesting test yesterday amidst intraday volatility in bitcoin, which has been surging higher on very high volumes. Given those volumes, Coinbase failed at around noon to handle traffic and had error reporting in some client accounts, causing an intraday 8% drawdown in bitcoin, and that same point in time marked the highs for the day for the Nasdaq. As bitcoin ETFs proliferate exposures, we view these correlations as worth monitoring more closely going forward.
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Markets
Stocks Steady on Inflation Watch
Wednesday was another quiet day for stocks. The SPX again traded in a tight range for the day as traders awaited the next inflation data point with the Fed’s preferred measure, the PCE. After the CPI report earlier in the month, traders have moved out rate cut expectations for 2024 making this report more important due to the uncertainty of the rate path. One other inflation item gathering more notice is the rise in gas at the pump. With yesterday’s jump of 2.5 cents, gas at the pump made new highs for 2024 and is now up 21 cents YTD. This will feed into headline inflation in the reports in the coming months. The most exciting part of Wednesday for markets was in crypto as Bitcoin approaches the all-time highs.
