Inflation ticked higher, but disposable income fell.

🎯Nasdaq powered up the session to close at its record high, fueled by a relief on January’s inflation figures- PCE. 

However, one should note that the inflation data shows a deepening price increase, but it was better than some expected. Notably, the core prices were still sticky, which could derail the Fed’s effort to bring inflation down to 2%. 

🎯A sigh of relief comes as the general prices rose mildly, still below the annual growth of PCE at below 3%. With a high base effect from the prior year, we saw the headline and core rates falling flower. 

🎯Analysts have been ramping up estimates of the PCE index to trend higher. Thus, when the actual result was in line with expectation, there was a pause to re-assess the current situation: that general inflation is still trending downwards, and the economy remains strong. 

🎯Others point to the usual adverse weather situations in the US and the noise from the start of the year effect, which could cloud the actual usefulness of the PCE indicator. Indeed, the stake is higher for February data, and any higher trend could shake the market drastically. 

🎯Another positive sign is that while higher wages were seen in January, the gains were eaten by the higher tax bills and inflation. This means less disposable income and thus less money available to spend in the economy, allowing general prices to cool. 

Moreover, we also saw a rise in personal saving rates, which ticked from 3.7% to 3.8%, a reverse of the decline in the past few months. This is a good sign for the Fed, given less money chasing goods and services in the market. 

Are we done for the week? Not exactly, as today we will receive the final piece of critical data: inflation expectation. 

📤What’s on the menu today? 🎲

A massive amount of economic data will be rolled out at 10.45 pm. 

1) The S&P Global Manufacturing PMI will be released at 10.45 pm. 

2) Construction spending will be released at 11 pm. Concurrently, ISM Manufacturing Prices for Fed will be out, too. 

3) Michigan’s 1-year and 5-year inflation expectations will also be released. Recall that in the prior reading, we saw the 1-year inflation expectation tick up. If this moves higher again, it could risk the Fed’s inability to anchor inflation and spell risk-off sentiments in the market. 

It is March 1, 2024, at 9.05 am in Singapore and 9.05 pm in New York. The market is fully priced in for perfection. Our hedge is eating up our portfolio gains, and we remain cautious for the next few weeks leading up to FOMC. 

We hope all our friends have a delightful day at work and in school. 

Cheers,