personal spending

Asia Morning Bites

The Bank of Japan (BoJ) meets to decide on policy today and is widely expected to retain its yield curve control (YCC) policy. Singapore will report CPI inflation while South Korea will release data on PPI inflation.


Global Macro and Markets

    The Japanese Yen Retreats as USD/JPY Gains Momentum

    Asia Morning Bites: China PMI Report Indicates Slowdown in Non-Manufacturing Sector Growth; US GDP Revision Spurs Surge in Bond Yields

    ING Economics ING Economics 30.06.2023 09:36
    Asia Morning Bites China's PMI report could show non-manufacturing sector growth slowing. US GDP revision causes bond yields to surge.   Global Macro and Markets Global markets:  US Treasuries did not like the upward revision to the US 1Q23 GDP figures. 2Y yields soared by 14.9bp to 4.859%, and 10Y yields rose an equally eye-popping 13.1bp to 3.838%. Markets are now pricing in an 83.5% chance of a 25bp rate hike in July, though they seem to think that might be it, with only about a 36% chance of a subsequent hike after that. Equities weren’t quite sure which way to turn. Stronger growth – good. Higher rates – bad. The S&P 500 rose 0.45% while the NASDAQ remained unchanged at the close. Chinese stocks fell. The Heng Seng Index fell 1.24%, while the CSI 300 dropped 0.49%. The USD showed no signs of weakening yesterday, given the support from rising yields. EURUSD has fallen to 1.0866. The AUD is back down to the low 66-cent range. Cable drifted slightly lower to 1.2612 and the JPY resumed its ascent, rising to 144.777. Asian currencies were mostly weaker against the USD. The CNY was only fractionally higher at 7.2475, aided by another stronger-than-expected daily fixing. The KRW has moved up to 1317.   G-7 macro: Yesterday’s third revision to the 1Q23 GDP numbers should not have been a market-moving event. But the scale of the revision higher, from 1.3% to 2.0% will be taken by some to mean that the Fed still has a lot of work to do. Today, we get the May personal income and spending figures, together with their associated price indices. The market consensus expects headline PCE inflation to fall from 4.4% to 3.8%YoY, but the core deflator to stay at 4.7%. Final June University of Michigan confidence figures are also released.  In the Eurozone, May inflation data could shed some light on the ECB’s next moves. There is a growing divergence in the path of inflation across the region, which is leading to some disagreement about the right path for policy. Though one suspects that the response will be, if in doubt, hike.   China: Official PMI data out this morning will likely show the manufacturing sector remaining in modest contraction, but could show non-manufacturing sector growth slowing as pent-up demand works its way through the system and more normal spending levels return.   Japan: IP output was weaker than expected, declining by 1.6% MoM, sa (vs 0.7% in April, -1.0% maket consensus), recording the first decline in four months. Motor vehicle production fell unexpectedly. But, the survey of production forecast shows that production is expected to rise in June by 5.6%. Consequently, we interpret today’s weak data as a temporary drop and expect the underlying growth trend to continue.   Tokyo consumer inflation unexpectedly slowed to 3.1% YoY in June (vs 3.2% in May, 3.4% market expectation), mainly due to base effects. In a monthly comparison, inflation rose 0.2% MoM sa, reversing May’s 0.1% decline. Details showed that inflationary pressure mainly increased in commodity prices (0.4%) while service prices (0.0%) remained little changed. This month's electricity bill hike was the main reason for the monthly rise. Meanwhile, the labour market remained relatively tight, with the jobless rate staying at 2.6%. Today’s data from Japan signals that the BoJ will continue to be patient on policy making.   South Korea: Monthly activity data was surprisingly strong, with rising industrial production (3.2% MoM sa), retail sales (0.4%), and investment (equipment 3.5%, construction 0.5%). The decline in service activity (-0.1%) for the third month shows that the service-led growth trend is fading. Based on today’s better-than-expected activity data, we will revise our 2Q23 GDP forecasts higher. But, at the same time, forward-looking data, such as machinery orders (-11.7% YoY) and construction orders (-27.8% YoY), weakened further and soft service activity in accommodation and restaurants suggest weaker consumption and investment in 2H23. Thus, we are going to downgrade the 2H23 growth forecasts.   In manufacturing activity data, the upside surprise mainly came from semiconductors, which rose by 4.4%, which is quite puzzling, as it contrasts with major chipmakers' commitments to cut production. It usually takes 6 months to reduce production, thus the production cut is not fully reflected in the May output figures. Also, the recent strong demand for AI chips may have had some positive impact.   What to look out for: China PMI South Korea industrial production (30 June) Japan labour market data (30 June) China PMI manufacturing (30 June) US personal spending and Univ of Michigan sentiment (30 June)
    Turbulent Times Ahead: ECB's Tough Decision Amid Soaring Oil Prices

    Inflation Numbers Take Center Stage as Quarter Comes to a Close

    Michael Hewson Michael Hewson 30.06.2023 09:50
    Inflation numbers a key focus as we round off the quarter       European markets continued their recent patchy performance, as we come to the end of the week, month, quarter, and half year, with the FTSE100 sliding back while the likes of the DAX and CAC40 were slightly more resilient, after German inflation came in slightly higher than expected in June.   US markets were slightly more positive, but even here the Nasdaq 100 struggled after a sizeable upward revision to Q1 GDP to 2%, and better than expected weekly jobless claims numbers sent US yields sharply higher to their highest levels since March, while the US dollar also hit a 2-week high.   The surprising resilience of US economic data this week has made it an absolute certainty that we will see another rate increase in July, but also raised the possibility that we might see another 2 more rate increases after that.   The resilience of the labour market, along with the fact that core inflation remains sticky also means that it makes the Federal Reserve's job of timing another pause much more difficult to time. Today's core PCE Deflator and personal spending numbers for May could go some way to making that job somewhat easier.   Core PCE Deflator is forecast to remain unchanged at 4.7%, while personal spending is expected to slow from 0.8% to 0.2%. While the Federal Reserve isn't the only central bank facing a sticky inflation problem, there is evidence that it is having slightly more success in dealing with it, unlike the European Central Bank which is seeing much more elevated levels of headline and core prices. Yesterday, we saw CPI in Germany edge higher from 6.3% in May to 6.8%, while in Spain core prices rose more than expected by 5.9%, even as headline CPI fell below 2% for the first time in over 2 years.   Today's French CPI numbers are expected to show similar slowdowns on the headline rate, from 5.1% to 4.6%, but it is on the core measure that the ECB is increasingly focussing its attention. Today's EU flash CPI for June is forecast to see a fall to 5.6% from 6.1%, however core prices are expected to edge back up to 5.5% after dropping to 5.3% in May. Compounding the ECB's and other central banks dilemma when it comes to raising rates is that PPI price pressures are falling like a stone and have been since the start of the year, in Germany and Italy. In April French PPI plunged -5.1% on a monthly basis, even as the year-on-year rate slowed to 7% from 12.8%.   If this trend continues today then it might suggest that a wave of deflation is heading our way and could hit sometime towards the end of the year, however while core prices remain so resilient central banks are faced with the problem of having to look in two different directions, while at the same time managing a soft landing. The Bank of England has an even bigger problem in getting inflation back to target, although it really only has itself to blame for that, having consistently ignored regular warnings over the past 18 months that it was behind the curve. The risk now is over tightening just as prices start to fall sharply.   Today's Q1 GDP numbers are set to confirm that the UK economy managed to avoid a contraction after posting Q1 growth of 0.1%, although it was a little touch and go after a disappointing economic performance in March, which saw a monthly contraction of -0.3% which acted as a drag on the quarter overall.   The reason for the poor performance in March was due to various public sector strike action from healthcare and transport, which weighed heavily on the services sector which saw a contraction of -0.5%. The performance would have been worse but for a significant rebound in construction and manufacturing activity which saw strong rebounds of 0.7%.   There is a risk that this modest expansion could get revised away this morning, however recent PMI numbers have shown that, despite rising costs, business is holding up, even if economic confidence remains quite fragile.     One thing we do know is that with the recent increase in gilt yields is that the second half of this year is likely to be even more challenging than the first half, and that the UK will do well to avoid a recession over the next two quarters.       EUR/USD – slid back towards and below the 50-day SMA, with a break below the 1.0850 area, potentially opening up a move towards 1.0780. Still have resistance just above the 1.1000 area.     GBP/USD – continues to come under pressure as we slip towards the 50-day SMA at 1.2540. If this holds, the bias remains for a move back to the 1.3000 area. Currently have resistance at 1.2770.       EUR/GBP – currently being capped by resistance at the 50-day SMA at 0.8673, which is the next resistance area. Behind that we have 0.8720. Support comes in at the 0.8580 area.     USD/JPY – briefly pushed above 145.00 with the November highs of 147.50 beyond that.  Support remains at the 142.50 area, which was the 61.8% retracement of the 151.95/127.20 down move. A fall below this support area could see a deeper fall towards 140.20/30.    FTSE100 is expected to open 18 points higher at 7,489     DAX is expected to open 12 points higher at 15,958   CAC40 is expected to open 8 points higher at 7,320      
    Asia Morning Bites: Focus on Regional PMI Figures, China's Caixin Manufacturing Report, and Upcoming FOMC Minutes and US Non-Farm Payrolls"

    Asia Morning Bites: Focus on Regional PMI Figures, China's Caixin Manufacturing Report, and Upcoming FOMC Minutes and US Non-Farm Payrolls"

    ING Economics ING Economics 03.07.2023 08:56
    Asia Morning Bites Market attention today will be on regional PMI figures and China's Caixin manufacturing report. Later in the week, the focus will shift to the FOMC minutes and US non-farm payrolls.   Global Macro and Markets Global markets:  US stocks finished last week on a positive footing, with both the S&P 500 and NASDAQ rising more than a per cent. That was a better performance than Chinese stocks. The CSI 300 did rise about half a per cent on Friday, but the Hang Seng was roughly unchanged. Tomorrow is the 4th of July, so the US will be out, and markets may be a bit thin ahead of the holiday. US Treasury yields nosed higher again on Friday. The 2Y UST yield rose 3.6bp to 4.895%, while the yield on the 10Y actually edged down 0.2bp to 3.837%. EURUSD staged an abrupt turn on Friday, rising back above 1.09 and it sits just above that level currently. The AUD has also made gains, rising to 0.666 ahead of tomorrow's RBA decision (we think no change, but the consensus is split), as has Cable, which is up to 1.2698. The Yen briefly went above 145 on Friday but with concern about intervention, it came down to 144.3 and traded in the narrow range. From previous years’ experience, intervention could be imminent, but we should watch the pace of depreciation more closely than the actual level of the JPY.  If the yen depreciates by more than 2% within 1-2 business days, we think that could be a trigger for government intervention. Other Asian FX has also made some gains against the USD. The THB and PHP were the main gainers on Friday, while the TWD lagged the pack.   G-7 macro:  US data on Friday was a little softer than predicted. Personal spending was up just 0.1% MoM, and flat on the previous month in real terms. The core PCE deflator rose 0.3%MoM, in line with expectations, but the core PCE inflation rate came in a little softer on rounding, to 4.6%YoY, down from 4.7%. Core inflation in the Eurozone edged 0.1pp higher to 5.4%, though this wasn’t quite as bad as had been expected. To kick this week off, we have the US Manufacturing ISM survey. Forecasters expect the headline index to move to a slightly less negative reading of 47.2 after 46.9 last month.   China: Caixin releases PMI data today. The official PMI numbers last week showed manufacturing still struggling with a below-50 reading. But although the non-manufacturing survey index was still in the expansion zone above 50, it was lower than the previous month. The Caixin manufacturing PMI has been a little stronger than the official numbers and was still just above 50 last month. We think it will probably drift down to about the 50 level this month, in line with the consensus view.   Japan:  The latest Tankan survey showed that Japan’s economy stays on its recovery path and will likely accelerate in the third quarter. The Tankan survey for large firms (both manufacturing and non-manufacturing) rose in both the current conditions and outlook indices. The current condition for manufacturing advanced from 1 to 5 for the first rise since June 2021 with confidence rising in the auto and electronics sectors. The outlook index also advanced to 9, beating the market expectation of 4. Despite the weakening of global demand, solid domestic demand, strong auto-sector performance and improving profits due to the weak JPY all may have supported the improvement seen in the manufacturing indices. The service-sector index also improved as expected. More importantly, capital investment across large enterprises rose 13.4% YoY (vs 3.2% 1Q, 10.0% market consensus).  The Tankan survey is one of the most closely watched indicators by the Bank of Japan, and we think the BoJ will likely upgrade its growth outlook in its quarterly macro-outlook report.   South Korea:  The trade balance in June recorded a surplus for the first time in sixteen months mainly due to falling global commodity prices. Within the export side, transportation - autos and vessels - gained the most, but this was more than offset by a decline in chips and petroleum. By destination, exports to the US fell for a third month while exports to the Middle East rose solidly due to regional infrastructure investment projects.  Please see the link for more details. However, business surveys showed that the manufacturing sector recovery is not so promising. Today’s manufacturing PMI fell to 47.8 in June from 48.4 in May. Last week’s local business survey also retreated. Thus, we are cautious about the improvement in manufacturing and exports in the current quarter.   Indonesia:  Indonesia reports inflation numbers today.  We expect inflation to moderate further with the market consensus pointing to a 3.6% YoY increase in prices last June.  Despite the slowdown in inflation, BI may opt to extend their pause and keep rates at 5.75% in the near term to help support the IDR.     What to look out for: Regional PMI reports and US NFP Japan Tankan survey and Jibun PMI (3 July) Regional PMI reports (3 July) Australia building approvals (3 July) China Caixin PMI manufacturing (3 July) Indonesia CPI inflation (3 July) US ISM manufacturing (3 July) South Korea CPI inflation (4 July) Australia RBA meeting (4 July) Japan Jibun PMI services (5 July) Philippines CPI inflation (5 July) China Caixin PMI services (5 July) Thailand CPI inflation (5 July) Singapore retail sales (5 July) US factory orders and durable goods (5 July) FOMC minutes (6 July) Australia trade (6 July) Malaysia BNM meeting (6 July) Taiwan CPI inflation (6 July) US ADP employment, initial jobless claims, trade balance, ISM services (6 July) South Korea BOP balance (7 July) Taiwan trade (7 July) US NFP (7 July)
    US Retail Sales Mixed, UK Inflation Expected to Ease: Impact on GBP/USD and Monetary Policy

    Dollar Weakens as Inflation Cools, Apple Makes History with $3 Trillion Market Cap

    Ed Moya Ed Moya 03.07.2023 10:12
    Dollar weakens as inflation cools Apple reaches historic $3 trillion market cap Fed rate hike bets eye a peak at 5.410%   US stocks are rallying after the Fed’s favorite inflation gauge showed the disinflation process remains intact and the consumer is showing signs of weakness. A hot inflation report and Fed swaps might have been convinced that a second-rate hike by year end was likely.  Treasury yields edged lower after the PCE report was a little dovish. US Data The core personal consumption expenditure index, a key reading followed by the Fed rose 0.3% in May, matching the consensus estimate.  On annual basis, the PCE reading dropped from 4.7% to 4.6%.  Personal spending came in softer at 0.1%, while the prior reading was revised lower from 0.8% to 0.6%.  The consumer is starting to look a lot weaker and that should support inflation to drop even further over the coming months.   Apple Apple is attempting to become the first $3 trillion company as Wall Street remains all-in on mega-cap tech stocks.  Last month, Apple’s capitalization became more valuable than the entire Russell 2000 and it seems like that could widen further.  Apple got a boost after Citi raised their price target to a Street-high price of $240.  Apple’s outlook remains solid given their balance sheet and future revenue projects, but these latest gains might be more of a defensive switch for traders who see a US economy that is recession bound.    
    China Continues to Increase Gold Reserves, While Base Metals Face Mixed Fortunes

    US Fed Set to Resume Rate Hikes Amidst Mixed Economic Data: A Look at Key Indicators and Earnings Ahead

    Ed Moya Ed Moya 24.07.2023 10:57
    US The Fed is expected to resume raising rates at the July 26th FOMC meeting.  Fed funds futures see a 96% chance that the central bank will deliver a quarter-point rate rise, bringin the  target range to between 5.25% and 5.50%, almost a 22-year high. The Fed delivered 10 straight rate increases and then paused at the June FOMC meeting.  The Fed is going to raise rates on Wednesday and seems poised to be noncommittal with what they will do in September.  The economic data has been mixed (strong labor data/cooling pricing pressures) and that should support Powell’s case that they still could deliver a soft landing, a slowdown that avoids a recession.  This seems like it will be the last rate hike in the Fed’s tightening cycle, but we will have two more inflation reports before the Fed will need to commit that more rate hikes are no longer necessary. The Fed will steal the spotlight but there are several other important economic indicators and earnings that could move markets.  Monday’s flash PMI report should show both the manufacturing and service sectors continue to soften, with services still remaining in expansion territory. Tuesday’s Conference Board’s consumer confidence report could fuel expectations of a soft landing. Thursday’s first look at Q2 GDP is expected to show growth cooled from 2.0% to 1.8% (0.9%-2.1% consensus range) as consumer spending moderated.  Friday contains the release of personal income and spending data alongside the Fed’s preferred inflation and wage gauges. The Q2 Employment Cost Index (ECI) is expected to dip from 1.2% to 1.1%. The personal consumption expenditures price index is expected to cool both on a monthly and annual basis (M/M: 0.2%e v 0.3% prior;Y/Y: 4.2%e v 4.6% prior). Earnings will be massive this week as we get updates from 3M, AbbVie, Alphabet, Airbus, AstraZeneca, AT&T, Barclays, BASF, Biogen, BNP Paribas, Boeing, Boston Scientific, Bristol-Myers Squibb, Chevron, Chipotle Mexican Grill, Comcast, Exxon, Ford Motor, General Electric, General Motors, GSK, Hermes International, Honeywell International, Intel, Mastercard, McDonald’s, Meta Platforms, Microsoft, Nestle, PG&E, Procter & Gamble, Raytheon Technologies, Samsung Electronics, STMicroelectronics, Texas Instruments, Thermo Fisher Scientific, UniCredit, Unilever, Union Pacific, Verizon Communications, Visa, and Volkswagen
    The Commodities Feed: Stronger Oil Prices Boost US Oil Production and Supply

    Yen Moves Higher as Bank of Japan Considers Yield Curve Control Tweak

    ING Economics ING Economics 28.07.2023 08:37
    Yen moves higher as Bank of Japan tweaks YCC By Michael Hewson (Chief Market Analyst at CMC Markets UK) European markets saw a strong session yesterday, buoyed by the belief that the central banks could be done when it comes to further rate hikes, after the ECB followed the Fed by raising rates by 25bps and then suggesting that a pause might be on the table when they next meet in September. The mood was also helped by a strong set of US economic numbers which pointed to a goldilocks scenario for the US economy.     US markets also opened strongly with the S&P500 pushing above the 4,600 level and its highest level since March 2022, before retreating and closing sharply lower, with the Dow closing lower, breaking a run of 13 days of gains. Sentiment abruptly changed during the US session on reports that the Bank of Japan might look at a possible "tweak" to its yield curve control policy at its latest policy meeting earlier this morning.     This report, coming only hours before today's scheduled meeting, caught markets on the hop somewhat pushing the Japanese yen higher against the US dollar, while pushing US 10-year yields back above 4%. With Japanese core inflation above 4% there was always the possibility that the Bank of Japan might spring a surprise, or at least lay the groundwork for a possible tweak. The Bank of Japan has form for when it comes to wrong footing the market, and so it has proved, as at today's meeting they announced that they would allow the upper limit on the 10-year yield to move from 0.5% to 1%. They would do this by offering to purchase JGBs at 1% every day through fixed rate operations, effectively raising the current cap by 50bps, and sending the yen sharply higher. The central bank also raised its 2023 inflation forecast to 2.5% from 1.8%, while nudging its 2024 forecast lower to 1.9%.     As far as today's price action is concerned, the late decline in the US looks set to translate into a weaker European open, even though confidence is growing that the Fed is more or less done when it comes to its rate hiking cycle. Nonetheless, investors will be looking for further evidence of this with the latest core PCE deflator, as well as personal spending and income data for June, later this afternoon to support the idea of weaker inflation. Anything other than a PCE Core Deflator slowdown to 4.2% from 4.6%, could keep the prospect of a 25bps September hike on the table for a few weeks more. Both personal spending and income data are expected to improve to 0.4% and 0.5% respectively.     We're also expecting a tidal wave of European GDP and inflation numbers, which are expected to confirm a weaker economic performance than was the case in Q1, starting with France Q2 GDP which is expected to slow to 0.1% from 0.2%. The Spanish economy is also expected to slow from 0.6% to 0.4% in Q2. On the inflation front we'll be getting an early look at the latest inflation numbers for June from France and Germany as well as PPI numbers for Italy. France flash CPI for June is expected to slow to 5.1% from 5.3%, while Germany CPI is expected to slow to 6.6% from 6.8%. With PPI inflation acting as a leading indicator for weaker inflation for all of this year the latest Italy PPI numbers will be scrutinised for further weakness in the wake of a decline of -3.1% in May on a month-on-month basis and a -6.8% decline on a year-on-year basis.       EUR/USD – failed to follow through above the 1.1120 area, subsequently slipping back, falling below the 1.1000 area, which could see a retest of the 1.0850 area which is the lows of the last 2 weeks. Below 1.0850 targets a move back to the June lows at 1.0660.   GBP/USD – slipped back from the 1.3000 area, falling back below the Monday lows with the risk we could retest the 50-day SMA and trend line support at the 1.2710. While above this key support the uptrend from the March lows remains intact.       EUR/GBP – struggling to rally, with resistance at the 0.8600 area, and support at the recent lows at 0.8500/10. Above the 0.8600 area targets the highs last week at 0.8700/10.   USD/JPY – while below the 142.00 area, the bias remains for a move lower, with the move below 139.70 targeting a potential move towards the 200-day SMA at 137.20.   FTSE100 is expected to open 24 points lower at 7,668   DAX is expected to open 38 points lower at 16,368   CAC40 is expected to open 20 points lower at 7,445
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    Asia Morning Bites: Australian Inflation in Focus Amid Market Movements

    ING Economics ING Economics 30.08.2023 09:38
    Asia Morning Bites Eyes down for Australian inflation. Markets brace for weaker payrolls after JOLTS decline in job openings. ADP due later.   Global Macro and Markets Global markets:  There was a lot of green on the boards across the equity world yesterday. Both US, European and Chinese stock indices all rose on the day. The S&P and NASDAQ rose 1.45% and 1.74% respectively, while the Hang Seng and CSI 300 rose 1.95% and 1.0%. The earlier announcement in China of stamp duty cuts and curbs on share sales by major shareholders may have provided some lingering support. Falling US Treasury yields possibly added some additional “oomph” to the US equity market. 2Y US Treasury yields fell 11bp to 4.894%, and the yield on the 10Y Treasury bond fell 8.2bp taking it to 4.12%. EURUSD picked up to 1.0876, having briefly traded below 1.08 intraday.  Other G-10 currencies also rallied against the USD. The AUD rose to 0.6480, Cable pushed up to 1.2644, and the JPY reversed a move up towards 147.50 and came all the way back to 145.89. These moves lifted the SGD too, which has pulled back below 1.35. The PHP and VND both lost ground yesterday.   G-7 macro:  It was a thin day for Macro, but it nonetheless contained some interesting data releases. The US JOLTS survey showed a sharp drop in job openings, falling from 9165K to 8827K. This was way down on the 9500K openings that had been forecast. There was also an unexpected and sharp decline in the Conference Board’s consumer confidence indicators, including those relating to the labour market. And the US house price purchase index also came in a little softer than had been expected. Germany’s GfK consumer confidence survey also came in on the low side. Today, German preliminary  CPI data for August are due. The US publishes the second release of 2Q23 GDP as well as the ADP employment survey (195K expected), to whet our appetites (or perhaps just to confuse us) before Friday’s payroll numbers.   Australia: July CPI inflation data is forecast to decline to 5.2%YoY from 5.4% in June. But the July data will also include some chunky electricity tariff increases, so we think there is a chance the number is higher than this, with an outside chance that inflation actually rises from last month.     What to look out for: US ADP report Australia building approvals and CPI (30 August) South Korea retail sales (30 August) US MBA mortgage applications, ADP employment, GDP and pending home sales (30 August) South Korea industrial production (31 August) Japan retail sales (31 August) China PMI manufacturing and non-manufacturing (31 August) Thailand trade balance (31 August) Hong Kong retail sales (31 August) India GDP (31 August) US initial jobless claims, PCE deflator and personal spending (31 August) Japan capital spending and Jibun PMI (1 September) South Korea trade (1 September) Regional PMI (1 September) China Caixin PMI (1 September) Indonesia CPI inflation (1 September) US NFP, ISM manufacturing and industrial production (1 September)
    A Bright Spot Amidst Economic Challenges

    Inflation Data Analysis: Will Key Numbers Prompt ECB's September Pause?

    Michael Hewson Michael Hewson 31.08.2023 10:25
    Key inflation numbers set to tee up ECB for September pause?     By Michael Hewson (Chief Market Analyst at CMC Markets UK)   European markets underwent a bit of a pause yesterday with a mixed finish, although the FTSE100 did manage to eke out a gain, hitting a two-week high as well as matching its best run of daily gains since mid-July. US markets continued to track higher, with the Nasdaq 100 and S&P500 pushing further above their 50-day SMAs, with both closing at a two-week high, for their 4th day of gains.   As we look towards today's European session, the focus today returns to inflation, and more importantly whether there is enough evidence to justify a pause in September from both the ECB as well as the Federal Reserve, as we get key flash inflation numbers from France, Italy, and the EU, as well as the latest core PCE inflation numbers for July from the US.   Over the course of the last few weeks there has been increasing evidence that the eurozone economy has been slowing sharply, with the recent flash PMIs showing sharp contractions in both manufacturing and the services sector. Other business surveys have also pointed to weakening economic activity although prices have also been slowing, taking some of the pressure off the ECB to continue to hike aggressively.   At the last ECB meeting President Lagarde suggested a pause might be appropriate at the September meeting, acknowledging that policy was starting to become restrictive. We've also seen some ECB policymakers acknowledging the risks of overtightening into an economic slowdown, while on the flip side head of the Bundesbank Joachim Nagel has insisted further rate hikes are likely.   Yesterday's Germany and Spain flash CPI numbers for August highlight the ECB's problem, with Spain CPI edging up in August to 2.4% with core CPI slowing modestly to 6.1%. Headline inflation in Germany only slowed modestly to 6.4% from 6.5%.   Today's headline EU flash CPI numbers are therefore expected to be a key test for the ECB, when they meet on 14th September especially if they don't slow as much as markets are pricing. French CPI is expected to accelerate to 5.4% in August while Italy CPI is forecast to slow to 5.6%.   EU headline CPI is forecast to slow to 5.1% from 5.3%, with core prices expected to slow to 5.3% from 5.5%, although given the divergent nature of the various CPI readings of the big four eurozone economies there is a risk of an upside surprise.    The weaker than expected nature of this week's US economic data has been good news for stock markets, as well as bond markets, in so far it has helped to reinforce market expectations that next month's Fed meeting will see US policymakers vote to keep rates on hold.   A slowdown in job vacancies, a downgrade to US Q2 GDP and a weaker than expected ADP jobs report for August appears to show a US economy that is not too hot and not too cold.   Even before this week's economic numbers the odds had already been leaning towards a Fed pause when the central bank meets in September, even if there is a concern that we might still see another rate hike later in the year.   These concerns over another rate hike are mainly down to the stickiness of core inflation which only recently prompted a sharp move higher in longer term rates, causing the US yield curve to steepen off its June lows. The June Core PCE Deflator numbers did see a sharp fall from 4.6% in May to 4.1% in June, while the deflator fell to 3% from 3.8%.   Today's July inflation numbers could prompt further concern about sticky inflation if we get a sizeable tick higher in the monthly, as well as annual headline numbers, reversing some of the decline in bond yields seen so far this week.   When we got the July CPI numbers earlier this month, we saw evidence that prices might struggle to move much lower, after headline CPI edged higher to 3.2%. This could translate into a similar move today with a move higher to 3.3% in the deflator, and to 4.2% in the PCE core deflator.     Personal spending is also expected to rise by 0.7% in July, up from 0.5% in June. Weekly jobless claims are expected to remain steady, up slightly to 235k.       EUR/USD – the rebound off the 1.0780 trend line support from the March lows continues to gain traction, pushing up to the 1.0950 area. We need to push through resistance at the 1.1030 area, to signal a return to the highs this year.   GBP/USD – another day of strong gains has seen the pound push back above the 1.2700 area. We need to push back through the 1.2800 area to diminish downside risk and a move towards 1.2400.       EUR/GBP – the failure to push through resistance at the 0.8620/30 area yesterday has seen the euro slip back towards the 0.8570/80 area. While the 50-day SMA caps the bias is for a retest of the lows.   USD/JPY – the 147.50 area remains a key resistance. This remains the key barrier for a move towards 150.00. Support comes in at last week's lows at 144.50/60.   FTSE100 is expected to open 6 points higher at 7,479   DAX is expected to open 30 points higher at 15,922   CAC40 is expected to open 13 points higher at 7,377  
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    Consumer Spending Strength, Sustainability Concerns, and Excess Savings

    ING Economics ING Economics 01.09.2023 10:13
    Consumer spending is strong, but is unlikely to be sustainable We then turn to personal spending, which was strong, rising 0.8% MoM nominally and 0.6% MoM in real terms. This gives a really strong platform for third quarter GDP growth, which we are currently estimating to come in at an annualised rate of somewhere between 3% and 3.5%. However, the key question is how sustainable this is – we don't think it is. The robust jobs market certainly provides a strong base, but wage growth has been tracking below the rate of inflation. Note incomes rose just 0.2% MoM in July. Maybe it is that confidence of job security that is encouraging households to seek to maintain their lifestyles amidst a cost-of-living crisis, via running down savings accrued during the pandemic and supplementing this with credit card borrowing. The problem is savings are finite and the banks are tightening lending standards significantly. Credit card borrowing costs are the highest since records began in 1972 so there is going to be a lot of pain out there. The chart below shows the monthly flows of excess savings since the start of the pandemic. Fiscal support (stimulus checks and expanded unemployment benefits) more than offset falling income resulting from job losses in 2020. Meanwhile, less spending versus the baseline due to Covid constraints further boosted the accumulation of savings.   Contributions of monthly changes in income and spending to the flow of savings ($bn)     Then through 2021 spending picked up, but then through 2022-2023 the nominal pick-up in incomes has been less than the increase in spending. Consequently we have seen savings flows reverse and now we are running them down each and every month, which is not sustainable over the long term.    Stock of excess savings peaked at $2.2tn, but we have been aggressively running this down ($tn)   Excess savings will soon be exhausted and financial pressures will intensify Based on this data, the $2.2tn of excess savings accumulated during the pandemic, $1.3tn has already been spent. At the current run-rate it will all be gone by the end of the second quarter of 2024 and for low and middle incomes that point will come far sooner. With banks far more reluctant to provide unsecured consumer credit, based on the Federal Reserve’s Senior Loan Officer Opinion survey, the clear threat is that many struggling households may soon find their credit cards are being maxed out and they can’t obtain more credit. With student loan repayments restarting, we expect consumer spending to slow meaningfully from late fourth quarter onwards and turn negative in early 2024.
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    US Jobs Data Signals Potential Fed Pause as Savings Dwindle

    ING Economics ING Economics 01.09.2023 10:18
    Jobs day!  By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   August ended on a downbeat note for the S&P500 and on an upbeat note for the US dollar as, even though the Federal Reserve's (Fed) favourite gauge of inflation, PCE, came in line with expectations in July for both the core and headline figures – and even though the core PCE posted the smallest back-to-back rise since late 2020, the supercore services inflation – very closely watched by Mr. Powell and team, and that excludes not only energy but also housing, rose by the most on a monthly basis since the year began. Plus, personal spending remained strong – in line with the GDP data released earlier this week.   Digging deeper, the personal income fell slightly, meaning that Americans continue to tap into the reserves to continue spending. But the good news for the Fed is that the consumer spending at this speed could continue as long as the savings are available. And according to the latest data, personal savings in the US fell from 4.3% in June to 3.5% in May. Before the pandemic, the savings level was close to 9%. In conclusion, savings are melting, housing affordability is falling, mortgage rates are up, low-income Americans reportedly fall behind their important payments like rent, and the main street gives away signs of suffering. But the GDP remains above 2%, above the long-term trend which is thought by the Fed to be around 1.8%, and the scenario of soft landing is what the market is pricing convincedly.  Jobs day!  The US jobs data shows signs of loosening but the numbers are still at historically strong levels. Due to be released later today, the US unemployment rate is expected to remain at a multi-decade low of 3.5%, and the US economy is expected to have added around 170K new nonfarm jobs in August. In the last twelve months, the US economy added almost 280K jobs on average. If today's data comes in line with expectations, the last 12-month average will still remain close to 270K monthly job additions on average. Historically, we expect NFP to fall to around 50K per month a few months into recession. So, to tell you that: we are not there just yet.   Today, a softer than expected NFP figure, a slight deterioration in the unemployment rate, or softer-than-expected wages data could further cement the idea that the Fed will skip a pause at the September meeting, and maybe at the November as well. So far, the US Treasuries have had their best week since mid-July. The US 2-year yield retreated to 4.85%, while the 10-year yield flirted with the 4% mark for the first time in three weeks. But who says a rapid jump, also says a rising possibility of a correction. One thing is sure, we don't expect any major central banker to call victory on inflation just yet...  European inflation sticks around 5.3% due to rising energy  Latest CPI estimate showed that Eurozone inflation stagnated at 5.3% in August due to the sticky energy costs, versus a fall to 5.1% expected by analysts. Inflation in France for example accelerated at a much faster pace than expected in August, while the latest PMI numbers showed weakness in activity. German retail sales also fell faster than expected in July, whereas inflation in Germany also ticked higher last month. The combination of weak economic data and sticky inflation is a nightmare scenario for the European Central Bank (ECB). The ECB should raise the rates to continue fighting inflation, even though the underlying economies are under pressure. Today, the final PMI figures will likely confirm the ongoing slowdown. The EURUSD gave back most of its weekly advance after yesterday's inflation data, hinting that the market is worried that further ECB hikes will further damage economic activity. The bears are tempted to retest the 200-DMA support. If they are successful, the next natural bearish target stands at a distant 1.0615, the major 38.2% Fibonacci retracement on past year's rally, which should distinguish between the continuation of the actual positive trend and a bearish medium term reversal.   More stimulus from China  This week's PMI data showed that the Chinese manufacturing contracted at a slower pace, and today's Caixin PMI showed that it stepped into the expansion zone in August, whereas the Chinese services PMI fell short of expectations and the wave of further bad news, like Country Garden announcing an almost $7bn loss in H1, talk of the company's yuan denominated bond default, Moody's downgrading of the firm to Ca and Evergrande's wealth unit saying that it couldn't make payments on its investment products due to a cash crunch, combined to the existing and worsening property crisis get the People's Bank of China (PBoC) to announce lower payment requirements for first and second-time house buyers, and to encourage lower rates on existing mortgages. But it won't improve the situation overnight. The CSI 300 is closing a week PACKED with fresh stimuli on a meagre note.   Crude rallies  The barrel of American crude jumped more than 2% yesterday and is consolidating above the $84pb level. The next bullish targets stand at $85pb, the August peak, and $89pb, in the continuation of an ABCD pattern. But the rally can't extend above $90 without reviving global inflation expectations and recession worries, which would then start playing against the bulls. 
    Asia Morning Bites: Singapore Inflation and Global Market Insights - 25 September 2023

    Asia Morning Bites: Singapore Inflation and Global Market Insights - 25 September 2023

    ING Economics ING Economics 25.09.2023 11:23
    Asia Morning Bites 25 September 2023 Singapore inflation to ease slightly lower on a quiet day for macro.   Global Macro and Markets Global Markets: Friday was a choppy day for US stocks, and though they ended marginally down, futures suggest that they will open positively today. Chinese stocks had a rare positive day. The CSI 300 rose 1.81%, while the Hang Seng index climbed 2.28%. US Treasury yields declined across the curve on Friday. 2Y UST yields fell 3.4bp to 5.11%, while yields on the 10Y bond fell 6bp to 4.434%. That didn’t have much impact on the USD. EURUSD. remained almost unchanged at around 1.0650. The AUD gained a little, rising to 0.6440, and the GBP slid further to 1.2243. James Smith has made a video which describes how markets are now eyeing rate cuts following the recent Bank of England pause. The JPY weakened on Friday after the disappointing lack of anything new from Governor Ueda at Friday’s BoJ meeting. Here’s a note by Min Joo Kang on the meeting and her thoughts about what comes next. Apart from the JPY, most Asian currencies made modest gains on Friday, with the THB and KRW out in front. The THB is sitting just above 36 currently, the KRW at 1336.75.   G-7 macro: There was very little on the macro calendar on Friday apart from the Bank of Japan meeting, and it is a quiet start to the week too, with Germany’s September Ifo survey the only notable data point.  Singapore:  Singapore reports inflation today on a quiet day in what will be a quiet week, with much of Asia off for mid-Autimn holidays later this week.  The market consensus suggests a slight dip for both headline and core inflation as favourable base effects and softer retail sales kick in. Headline inflation could dip to 4%YoY (from 4.1%YoY), while core inflation should slip to 3.5%YoY from 3.8%.  This alongside slowing growth will be factored into the upcoming MAS decision next month with no likely adjustments to policy settings just yet.      What to look out for: US sentiment data Singapore inflation (25 September) Japan department store sales (25 September) US Dallas and Chicago Fed national activity (25 September) Fed Kashkari speaks (25 September) South Korea consumer confidence (26 September) Singapore industrial production (26 September) US Conference board consumer confidence, new home sales, FHFA house price index (26 September) Australia CPI inflation (27 September) China industrial profits (27 September) Japan machine tool orders (27 September) US durable goods orders and MBA mortgage applications (27 September) Australia retail sales (28 September) US initial jobless claims, personal consumption, pending home sales (28 September) Fed's Powell, Goolsbee and Barkin speak (29 September) Japan Tokyo CPI inflation and labor report (29 September) Thailand trade (29 September) US University of Michigan sentiment, personal spending (29 September)
    Asia Morning Bites: Australia's CPI Inflation Report and Chinese Industrial Profits

    Asia Morning Bites: Australia's CPI Inflation Report and Chinese Industrial Profits

    ING Economics ING Economics 27.09.2023 12:52
    Asia Morning Bites Australia's August CPI inflation report should show inflation rising again. The fall in Chinese industrial profits may be moderating.   Global Macro and Markets Global markets:  For a change, US Treasury yields didn’t rise yesterday. Nor did they fall particularly. The yield on the 2Y UST was down just 0.4bp to 5.121%, while that on the 10Y bond rose just 0.2bp to leave it at 4.536%. This was despite Neel Kashkari, a voter on the FOMC this year, saying that he thought even a soft-landing scenario would probably require one more rate hike this year. Michelle Bowman talked about the need to cool the economy to bring rents down in line with wage growth, though she did not explicitly outline a path for rates. But she implied more was needed. With this, it feels as if markets are listening and choosing to believe that in the end, the Fed will not carry through on their threats to raise rates again, either because the threat lacks credibility, or because they believe that the growth and inflation evidence will turn sufficiently to make it unnecessary. It’s a tough call to make and leaves upside as well as downside risk. Kashkari and Bowman are both due to speak again today. US Stocks cooled on Tuesday. The S&P 500 dropped 1.47% while the NASDAQ fell 1.57%. Equity futures are looking mildly positive. It was also another off-day for Chinese stocks. The Hang Seng fell 1.48%, while the CSI 300 fell 0.58%.   The risk-off sentiment may be helping the USD, which has pushed even lower overnight, dropping to 1.0570. The AUD has declined below the 64 cent level, though may get a boost from CPI inflation data later on today. Cable has dropped to 1.2148, and the JPY has risen to 149.07, a level at which you have to think there could be some more verbal intervention (Finance Minister Suzuki has already waded in) and close to a level where physical intervention may occur. The CNY has held roughly level at 7.3112, though the rest of the Asia pack was weaker against the USD. The KRW and THB, together with the IDR were the weakest currencies in the region yesterday. G-7 macro:  US new home sales fell a little more than expected in August, dropping 8.7% MoM to a 675K annual pace. The Conference Board consumer confidence index was down slightly, breaking down into a slightly stronger present situation response, but a sharply weaker expectations survey. Germany also releases consumer confidence figures from GfK today. The only US data of note is the August durable goods orders and shipments figures.   Australia: A combination of base effects wearing off, and higher gasoline and food prices will take Australia’s monthly inflation rate for August back up again after the surprising decline in July. The inflation rate should push back from the July 4.9% YoY rate to a little over 5%. The consensus estimate sits at 5.2%, which is not far from our estimate of 5.1%. While this does not immediately threaten the market’s view that the RBA has peaked in its rate cycle, a few more results like this, plus some economic resilience may spur thoughts that there is still one more hike to come. We certainly are not ruling another hike out.   China: Industrial profits figures for August are released this morning. The year-on-year decline in this series has been moderating, and we expect this to continue, though probably still leaving profits down from a year ago.   What to look out for: Australia inflation Australia CPI inflation (27 September) China industrial profits (27 September) Japan machine tool orders (27 September) US durable goods orders and MBA mortgage applications (27 September) Australia retail sales (28 September) US initial jobless claims, personal consumption, pending home sales (28 September) Fed's Powell, Goolsbee and Barkin speak (29 September) Japan Tokyo CPI inflation and labor report (29 September) Thailand trade (29 September) US University of Michigan sentiment, personal spending (29 September)
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    Asia Morning Bites: Focus on China's October Industrial Profits Amid Global Market Dynamics

    ING Economics ING Economics 27.11.2023 15:08
    Asia Morning Bites China profits data for October to dominate Asian macro releases on an otherwise quiet day.   Global macro and markets Global markets: US Treasuries ended the week with yields rising again. The yield on the 2Y Treasury rose 4.9bp, while the 10Y yield went up 6.2bp to 4.466%, taking it close to the 4.50% line again. The USD was softer again on Friday. EURUSD rose to 1.0943. The AUD has tested the 0.6590 level before settling down to around 0.6584. Sterling has broached 1.26 for the first time since September. But the JPY is still hovering below 1.50 and hasn’t gained as much as its other G-10 peers. Other Asian FX was mostly softer on Friday and will likely catch up with the G-10 moves this morning. The weaker currencies, KRW, THB, and TWD will probably outperform the others. The CNY is little changed at 7.1490. US equities did very little on a low trading volume day as many market participants dragged the Thanksgiving holiday over to the weekend. US equity futures are looking a bit negative today. Chinese markets were down on Friday, possibly reflecting unease after a criminal probe was launched into the financial conglomerate, Zhongzhi, though most of the weakness in the CSI 300 came from the info-tech part of the index, along with consumer discretionary stocks and industrials. Financials were down 0.44% on the day. G-7 macro: Friday’s very meagre offerings on the macro front don’t offer much new insight. The S&P PMI indices for the US rose fractionally for manufacturing but remained just in contraction territory at 49.9. The service sector PMI was stronger at 50.3, but down from the October 50.8 reading, and takes the composite PMI down to just 50.4. There isn’t enough history for this series to draw any meaningful conclusions from this. Today, we just get US new home sales for October. The US housing market has been doing surprisingly well, but the market is looking for a small 4.7% MoM decline this month – mainly a statistical pullback from the very robust September figure. China: Industrial profits data for October come out today. This is expected to show the contraction in earnings abating slightly, in line with some of the slightly stronger PMI and activity figures. The September figure was a -9.0%YoY ytd decline. Figures around the -6.7% mark have been cited as the consensus forecast. What to look out for: China Industrial Profits and US new home sales China industrial profits (27 November) Thailand trade (27 November) US new home sales (27 November) Australia retail sales (28 November) Taiwan GDP (28 November) US Conference board consumer confidence (28 November) South Korea business survey (29 November) US GDP, personal consumption, wholesale inventories (29 November) US Fed Beige book (30 November) South Korea industrial production and BoK meeting (30 November) Japan retail sales and industrial production (30 November) China PMI manufacturing and non-manufacturing (30 November) US initial jobless claims and personal spending (30 November) US pending home sales (30 November) Japan jobless rate and job-applicant ratio (1 December) South Korea trade balance (1 December) Regional PMI (1 December) China Caixin PMI (1 December) Indonesia CPI inflation (1 December) US ISM manufacturing (1 December)
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    FX Daily: Navigating Central Bank Winds in Year-End Markets

    ING Economics ING Economics 18.12.2023 13:49
    FX Daily: One last big central bank meeting The dollar is recovering some ground after the pushback from Fed officials against rate cut bets. However, the dovish Dot Plot may work as an anchor for rates and keep the dollar soft into the end of December. In Japan, the BoJ announces its policy in the early hours of tomorrow, and that will direct market expectations about a January hike.   USD: Softer into year-end? The last few days of market action, before volumes dry up for Christmas, should continue to revolve around the “tug of war” between Fed officials trying to temper rate cut speculation and investors who have instead seen a validation of dovish bets from last week’s Dot Plot projections. Data can tip the scale in these situations, so consumer confidence, personal spending, and PCE figures should move the market this week. We don’t expect the last bits of US data in 2023 to paint a very different picture, though. Ultimately, the Dot Plot surprise should keep providing an anchor for rates into the new year and prevent a major dollar rebound in a period that is also seasonally unfavourable for the greenback. It will, however, be important to see how much louder the post-meeting pushback against rate cut bets by Fed officials will be. We’ll hear from Chicago Fed President Austan Goolsbee today and Raphael Bostic tomorrow, but with Christmas getting closer, there will obviously be fewer chances to collect FOMC members’ remarks. Today, the US calendar is otherwise quiet, and the FX market will primarily focus on the Bank of Japan announcement overnight (more in the JPY section). We expect DXY to stabilise around 102/103 into year-end, but risks are skewed to the downside.
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    Asia Morning Bites: BoJ Policy Decision and Singapore Inflation in Focus

    ING Economics ING Economics 25.01.2024 12:29
    Asia Morning Bites The Bank of Japan (BoJ) meets to decide on policy today and is widely expected to retain its yield curve control (YCC) policy. Singapore will report CPI inflation while South Korea will release data on PPI inflation.   Global Macro and Markets Global markets:  Monday was a quiet day for US Treasuries. The 2Y UST yield rose 0.7bp while the 10Y yield fell slightly by 1.7bp to 4.105%. The USD made slight gains against the EUR, taking EURUSD down to 1.0881. The AUD was also weaker, falling to 0.6566, though both Cable and the JPY held their ground. Asian FX was mostly a shade weaker against the USD. The PHP and THB propped up the bottom of the table. At the other end, the TWD made small gains taking it to 31.344. US stocks clawed their way higher with a new record for the S&P 500 of 4850 after a modest 0.22% gain. The NASDAQ also made a slight gain of 0.32%. US equity futures don’t seem to have a strong view on today’s open. Chinese stocks had another bad day. The Hang Seng fell 2.27% while the CSI 300 fell 1.56%. G-7 macro:  There was nothing of note in the G-7 macro calendar yesterday, and there isn’t much going on today either. UK public finance data precedes the US Richmond Fed business survey. The Bank of Japan is also meeting (see more below). Japan:  Most forecasters expect that the Bank of Japan (BoJ) will maintain its ultra-loose monetary policy today. Consequently, the market’s attention will be focused on what Governor Ueda thinks about inflation and wage growth and whether he will give any hints of policy change in the near future. The market will probably be disappointed again because we don’t believe that Ueda will give a clear signal of policy normalization in the near future. He may, however, sound more dovish than in the past, given the recent slowdown in inflation. The government renewed its utility subsidy program, so we expect the BoJ to revise down its FY2024 inflation outlook in today’s quarterly macro-outlook report. Singapore: December inflation is set for release today.  The market consensus points to inflation dipping to 3.5% YoY (from 3.6% previously) while core inflation may inch lower to 3.0% YoY from 3.2% YoY in November. Despite the slight deceleration, the MAS is widely expected to retain policy settings at the 29 January meeting, remaining wary of potential flare-ups in inflation while also looking to support an economy facing a challenging global trade environment.   What to look out for: BoJ decision and Singapore inflation South Korea PPI inflation (23 January) Singapore CPI inflation (23 January) Australia business confidence (23 January) Taiwan industrial production (23 January) BoJ policy meeting (23 January) US Richmond Fed manufacturing index (23 January) Australia Westpac leading index (24 January) Japan trade balance and Jibun PMI (24 January) Malaysia BNM policy (24 January) US MBA mortgage applications (24 January) South Korea GDP (25 January) Japan department sales (25 January) ECB policy meeting (25 January) US GDP, durable goods orders, initial jobless claims, new home sales (25 January) Japan Tokyo CPI inflation (26 January) Philippines trade (26 January) Singapore industrial production (26 January) US PCE deflator, pending home sales and personal spending (26 January)

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