Latest PCE Inflation Closer, Wall Street Opens Softly

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The United States (US) stock exchange, Wall Street opened tending to weaken in trading Wednesday (28/2/2024), ahead of personal spending inflation readings which will influence betting on when the central bank will start lowering interest rates.

The Dow Jones Industrial Average (DJIA) opened down 0.48% to 38,786.352, the S&P 500 corrected 0.26% to 5,065.08 and the Nasdaq Composite depreciated 0.38% to 15,974.23.

Before the release of personal consumption expenditure (PCE) inflation data tomorrow, investors are weighing the release of the second estimate of economic growth or US gross domestic product (GDP) for the fourth quarter of 2023.

Based on a report from the US Bureau of Economic Analysis (BEA), Uncle Sam’s GDP in the fourth quarter of 2023 was revised to grow 3.2%, from the previous initial estimate of 3.3%.

“This update primarily reflects downward revisions in private inventory investment partially offset by upward revisions in state and local government spending and consumer spending,” BEA said in a press release.

Throughout 2023, Uncle Sam’s economy is recorded to grow 2.5%, exceeding growth of 1.9% in 2022.

Consumer spending, which accounts for about 70% of US economic activity, grew at an annual pace of 3% from October to December last year.

Meanwhile, state and local government spending increased by 5.4% per year in the last quarter of 2023, which is the fastest pace since 2019. Export growth also contributed to growth in the fourth quarter of 2023.

This comes before the closely watched PCE inflation reading in January 2024, which data is scheduled for release on Thursday.

Investors will be watching this data release for future clues regarding the health of the economy and insight into the path of the US central bank’s (Federal Reserve/The Fed) monetary policy.

Market expectations for an interest rate cut will be reduced if the underlying inflation data turns out to be stronger than expectations.

Recently, the market pushed back expectations of interest rate easing to the June meeting, according to CME’s FedWatch Tool.

Based on this tool, the market estimate that the Fed will still hold its benchmark interest rate at its meeting on March 20 has reached 97.5%. This is of course the opposite of the position at the start of this year when many expected the Fed to start cutting interest rates.

Apart from PCE inflation data, the market will also monitor the release of weekly jobless claims data for the week ending February 24. This data will also be released tomorrow.

Trading Economics market consensus estimates that weekly unemployment claims this time will rise again to 210,000, from the previous week ended February 17 at 201,000 claims.

If the unemployment claims number rises again, then it could be said that labor data is starting to cool. However, this cannot be concluded directly, considering that there are still other workforce data that can be used as a benchmark.

From stock news on Wall Street, United Health’s shares fell almost 4%. Meanwhile, Intel and Nike shares also corrected more than 1%. Meanwhile, Urban Outfitters shares collapsed 8.4%, after releasing financial performance for the fourth quarter of 2023 which was weaker than previously estimated.

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