A Game of Divergences
We’re separating the doves from the hawks.
It’s a holiday-shortened week following the unofficial start of summer in the US, but these four days will be rich with incoming data.And we’ll hear from eight Federal Reserve speakers across nine scheduled events through Thursday.
The main event is the release of Personal Consumption Expenditure Price Index data for April at 8:30 a.m. ET on Friday. Core PCE is the Fed’s preferred inflation gauge.
And this particular print is as fraught as any, if not more so, with global central banks already easing into dovish policy regimes.
Minutes from the Federal Reserve’s April 30-May 1 policy meeting – reflecting as they did the then-current incoming data – had investors, traders, and speculators all up in their feelings for what they thought was lost hope of imminent easing.
They want at least in-line April PCE data and hope for a softer-than-expected reading that will provide offer reassurance of at least one rate cut this year.
Commercial traders held a net short position of $5.36 billion as of May 21, reversing a net long position of $2.02 billion as of May 14.
That reversal probably reflects a reaction to cooling US economic data.
Before we get April PCE numbers on Friday, we’ll see a consumer confidence report from the Conference Board today, the Fed’s beige book for April on Wednesday, and initial jobless claims, first-quarter GDP, and pending home sales data on Thursday.
All that follows the first signs of cooling in six months in the April Consumer Price Index data as well as retail sales data suggesting waning consumer strength.
The Fed, of course, has always been about incoming data, even back in December when Jerome Powell first suggested that it may soon dictate a change in policy.
It’s important to remember that what moved the forecast up to as many as six or seven rate cuts in 2024 and back down again to maybe one or two are the vicissitudes of investors, traders, and speculators.
Price action, people, is all about us and our behavior, not central bankers.