Eyes on US Core PCE data as stocks remain mixed up

Headlines

* Dow manages a gain, while Nasdaq and S&P 500 slip

* Yen drifts lower from 10-week peak versus the dollar as markets stabilise

* Investors keep late summer rate cut in sight as US economy rebounds

* Gold falls to a more than two-week low, gets caught up in sell-off

FX: USD was mixed with a tight range and choppy session. Lows were seen in the morning as USD/JPY plunged. But hotter than expected Q2 GDP led by strong consumer spending and a big surprise drop in initial jobless claims numbers saw buyers emerge. On the flip side, durable goods slumped. Core PCE is up next.

EUR was a relative an island of stability amid rising volatility all around it. Germany’s July IFO Business Index dropped in June, with a small improvement expected. Soft survey data this week have cast some doubt over the resilience of the German economic rebound.

GBP lost support and settled on its lows. That price action looks bearish after losing the 38.2% Fib retracement support of the July gains at 1.2879. Next support at just above 1.28.

USD/JPY saw huge intraday volatility as the great carry trade unwind initially continued. The major tanked to major support at 152 before rebounding sharply and dramatically finishing higher on the day, very close to 154. There’s a two in three chance of a BoJ rate hike next week, slightly lower than on the open on Thursday.

AUD fell again for a ninth straight day to 0.6513. Prices bounced back but still much lower on the day and below the 100-day and 200-day SMAs. USD/CAD peaked at 1.3849 after the back-to-back BoC rate cut earlier in the week.

US Stocks: US markets were mixed with the rotation trade apparent again. The benchmark S&P 500 closed 0.50% lower at 5,399. The tech heavy Nasdaq 100 finished down 1.10% at 18,831. The Dow Jones settled higher, up 0.20% at 39,953 and the Russell 2000 index outperformed, rising 1.3% at 2,223.  The Nasdaq has underperformed the small cap Russell 2000 for 11 of the past 12 days, erasing this year’s outperformance for the big-tech index. That is the biggest relative underperformance of the Nasdaq versus the Russell 2000 since the peak of the dotcom boom. Ford reported a second quarter miss though the top line beat. IBM beat on software sales and the top and bottom line amid a boost in AI earnings.

Asian stock futures are in the red. Asian stocks were negative after the worst declines since late 2022 in the S&P 500 and Nasdaq. The ASX 200 was dragged lower by tech plus miners suffered from lower commodity prices. The Nikkei 225 underperformed on ongoing yen strength and a possible BoJ hike next week. The Hang Seng and Shanghai Composite sold off with the Hong Kong index fell towards 17,000 where support held.

Day Ahead – US Core PCE

The Fed’s favoured measure of inflation, core PCE, closes the week with the June estimate. Q2 core PCE inflation is forecast to slow to 2.7% q/q compared to 3.7% in Q1. This includes an estimated 0.1% m/m rise in June. This would be the second 0.1% estimate in a row.

There are two-tailed risks to this June estimate given differences in how PCE is calculated versus CPI. But the usual pattern is for core PCE to undershoot core CPI that itself was a paltry 0.06% m/m SA in June. Some economists reckon it is quite possible that core PCE will be even weaker than consensus.

The key question is whether this is another temporary soft patch. As the US economy starts to come back into better balance along with the labour market, the volatile pattern of future core inflation reports may be under less pressure.

Chart of the Day – Gold falls to support zone

Gold continues to oscillate with prices falling in six of the last seven trading days, after making a record high at $2483 in the middle of this month. Bullion has dipped to its 50-day SMA at $2360 and a Fib retracement level (61.8%) of the May low/July high at $2356. The 100-day SMA is below at $2322. A softer set of pirce data today may see buyers step in and the support area hold. Hotter figures could see the long-term SMA challenged.