The big event this week was the core personal consumption expenditures data in the US. The Core Personal Consumption Expenditures Index is the Fed's preferred measure of inflation. Expectations were for an increase of 0.3%. The actual increase was approximated to 0.2% for the basic measurement. In fact, the unrounded number was 0.249% which is just below the number required to round to 0.2%. As a result, the annual measure came in as expected at 2.8% for core personal consumption expenditures. This means when the headline number came in at 0.3% as expected and the year-on-year measure came in at 2.7%.
The markets' interpretation was that it was good enough to keep the Fed on pace for a possible cut by the end of the year. However, it will take a few more months of lower prices.
The Fed's 2% target mathematically requires monthly numbers below 0.2%. An unrounded 0.249% is okay, but it is not less than 0.2%. The hopes are that shelter costs will decrease over time. However, Fed officials are not confident about the 2% figure by the end of the year, and are more hopeful that at the end of 2025, the 2% target can be reached. That's a long time from now.
However, yields declined today.
- The two-year yield is 4.876%, -5.2 basis points
- The 5-year yield is 4.508%, -6.2 basis points
- The 10-year yield is 4.502%, -5.1 basis points
- The 30-year yield is 4.650%, -3.5 basis points
For the trading week, the 2-year yield fell by -6.9 basis points, while the 10-year yield rose by +3.7 basis points as the yield curve steepened (although remaining negative at -22.7 basis points).
For May, the 2-year bond yield fell by -16.0 basis points while the 10-year bond yield fell by -18 basis points.
In the currency market today, the US dollar fell but was overshadowed by the decline in the Japanese yen. The strongest currencies were the New Zealand dollar and the Canadian dollar. Next week, the Bank of Canada is expected to cut interest rates by 25 basis points when the central bank meets on Wednesday. Today, Canadian GDP data for the first quarter came in weaker than expected at 1.7% versus 2.2% expected. The Canadian dollar is still moving higher despite the weak data.
From strongest to weakest among major currencies
Looking at some of the major currency pairs from a technical standpoint:
- EURUSD is available to buyers for its 100-day move every 1.0807 in the Asian session. The pair rose above the 100 and 200 hourly moving averages at 1.0840 during the European morning session. It peaked between the 1.0876 and 1.0887 swing zone shortly after the PCE data, then came back down to retest the 100 and 200 hourly moving averages, finding support against those levels. Those moving averages at 1.08405 will be the main gauge for the new trading week. The European Central Bank is expected to cut interest rates next week.
- GBPUSD also traded up and down in trading today, but ended the week above its 100 hour moving average at 1.2739 and its 200 hour moving average at 1.2731. These moving averages will be the main gauge for the GBP/USD pair in the new trading week.
- The USDJPY pair is also closing above its 100 and 200 hour moving averages after today's volatile up and down price action. The 100-day moving average is at 157.05. The 200 hour moving average is located at 156.88
For the month of May, the DXY index fell by -1.59%. Looking at major currencies against the US dollar, the US dollar fell against all major currencies in May:
- -1.72% against the euro
- -0.35% against the Japanese yen
- -1.99% against the British pound
- -1.87% against the Swiss franc
- -1.10% against the Canadian dollar
- -2.76% against the Australian dollar
- -4.31% against the New Zealand dollar
In the US stock market today, late-day buying erased previous declines. The Dow Jones Industrial Average rebounded and is on its best trading day of the year. All major indexes closed higher during May, but fell during the trading week. The Standard & Poor's and Nasdaq indices snapped a five-week winning streak.
For the trading week:
- Dow Jones Industrial Average fell -0.98%
- The S&P snapped a 5-week winning streak with a decline of -0.51%.
- The Nasdaq ended its five-week winning streak with a decline of -1.10%.
The story was different for May:
- Dow Jones Industrial Average rises 2.3%
- The Standard & Poor's index rose 4.8%.
- The Nasdaq index rises 6.88%, its largest gain in 2024 and since November 2023.
- The Russell 2000 rose 4.87%, its biggest gain since February 2024
Next week, in addition to the ECB and Bank of Canada interest rate decision, with the two central banks expected to cut interest rates by 25 basis points, the main focus will be on the US jobs report on Friday, where estimates point to an increase of 185,000. The unemployment rate is expected to remain steady at 3.9%. The US jobs report will be previewed by traditional ADP and JOLTs and employment readings from ISM/PMI manufacturing and services data. Emphasis will also be placed on inflation measures from monthly PMI data.
In addition to Canada's interest rate decision, they will release employment statistics on Friday as well.
