Watch the inflation data

Thoughts of the Day

The Personal Consumption Expenditure Price Index, which measures the prices that people living in US pay for goods and services, is the US Federal Reserve’s preferred measure of inflation. It will be released later today and is expected to show that prices that consumers paid in April this year rose 2.7% compared to the prices they paid in April last year. This rise is the same as that of March.
However, if price rises should slow, it will give the Fed confidence that inflation is continuing to drop towards their 2% target. That will increase the likelihood of them cutting interest rates to help boost the economy as they believe that interest rates are now high enough to restrict economic growth. They are unwilling to cut interest rates yet because they fear that inflation may become a problem again if they cut too soon.
If we see an undershoot in the PCE Price Index, investor risk sentiment will be boosted, and the prices of risk assets will rise.

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Day Ahead

  • Euro Area Inflation (Headline: +2.5% YoY expected vs +2.4% prev, Core: +2.7% YoY expected and prev)
  • US PCE Price Index (Headline: +2.7% YoY expected and prev, +0.3% MoM expected and prev; Core: +2.8% YoY expected and prev, +0.2% MoM expected and +0.3% prev)
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What Happened Yesterday

Market Movements as of New York Close 30 May 24

[Fedspeak]
Logan (2026 voter, slight hawk):
“Inflation heading to 2%, too soon to cut rates.”
Williams (current voter, slight hawk): “I don’t feel any urgency to lower rates with the economy performing as well as it has.”
Bostic (current voter, slight hawk): “The Fed needs to stay in a restrictive stance. I don’t think a rate hike will be required to reach the 2% goal.”
Goolsbee (2025 voter, slight dove): “The Fed is not trying to return the price level to where it was; that would require deflation.”
(Logan and Williams continue to harp that there is no urgency to cut rates. Bostic remains data dependent.)

US GDP 2nd Estimate : Growth rate: +1.3% Quarter-on-Quarter as expected (vs +3.4% previously), Price Index: +3.1% QoQ as expected (vs +1.7% prev) The US Dollar Index fell -0.12% from 104.92 to 104.79 in immediate reaction.

Tokyo Consumer Price Index: The core index rose +1.9% YoY as expected (vs +1.6% prev), while the headline index show prices rose +2.2% YoY (vs +1.8% prev [revised from +1.4%]). The market reaction was muted.

Chinese PMI : Manufacturing: 49.5 actual (vs 50.5 expected vs 50.4 prev), Non-Manufacturing: 51.1 actual (vs 51.5 expected vs 51.2 prev). A reading below 50 indicates a contraction while a reading above 50 indicates expansion. Reaction in the USDCNH was muted.

The US stock market opened lower from Wednesday. It then range-traded in the early New York session before falling in the second half of the session due to hawkish Fedspeak. The S&P 500 fell -0.60% (high: -0.13%, low: -0.85%), the Dow Jones dropped -0.86% (high: +0.14%, low: -1.15%) while the Nasdaq slipped -1.06%  (high: -0.17%, low: -1.33%).

The crypto market tried to go higher earlier in the day but was met with risk aversion, resulting in a daily move that is not very significant for the crypto market. BTC rose slightly more than 1% while ETH fell nearly -0.5%. 
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Headlines & Market Impact

Chinese companies rush to hike dividends, buy back shares in Japan-style reform

Notable Snippet: Chinese listed companies are rushing to buy back shares and lift dividends as they respond to regulators’ calls that echo reform efforts in Japan and South Korea, driving a welcome rally even if investors doubt that broader governance changes are afoot.

China-listed firms announced record cash dividends totalling 2.2 trillion yuan ($300 billion) for 2023 despite a fall in combined profit, official data shows. Over 100 listed companies returned money to investors for the first time.

Meanwhile, a growing number of firms are unveiling share buyback schemes to avoid being delisted or sanctioned with other penalties under tougher rules.

China’s measures, designed to improve investor returns and announced in March, have triggered a solid rebound in stocks – the benchmark CSI300 (.CSI300) is up almost 17% from February’s five-year lows.

They have also drawn comparisons with the Tokyo Stock Exchange’s push for capital efficiency that drove the Nikkei to record highs.

But a Japan-style rally is unlikely as China’s reforms have met with scepticism from fund managers who say it’s more about rescuing the market than improving corporate governance.

Government-controlled companies, which account for roughly 30% of market capitalization in China and Hong Kong, are under the tight grip of the ruling Chinese Communist Party, which could raise conflict of interest issues with non-state shareholders.

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Japanese data to confirm FX intervention as yen weakness persists

Notable Snippet: Japan will release closely watched data on Friday that shows how much it spent intervening in the foreign exchange market to prop up the yen in May, in moves that kept the currency from testing new lows but are unlikely to reverse longer-term declines.

Tokyo is suspected to have spent around a combined 9 trillion yen ($57.11 billion) on April 29 and May 2 to arrest the yen’s sharp fall to a 34-year low of 160 to the dollar, according to private-sector estimates.

Authorities have been tight-lipped on whether they forayed into the market in “stealth intervention,” keeping markets focused on Friday’s data on the amount it spent on intervention from April 26 to May 29.

The monthly data only shows the total amount Japan spent on currency intervention during the period. A more detailed daily breakdown of intervention will only be seen in data for the April-June quarter, likely to be released in early August.

After hitting a 34-year low of 160.245 yen on April 29, the yen bounced back on suspected intervention but has languished near the 160-threshold, widely seen as authorities’ line in the sand for currency intervention.

Now, market attention is shifting to whether and how soon Japan might step into the market again.

Much of that depends on the strength of the U.S. economy and Federal Reserve’s rate cut path, while the Bank of Japan (BOJ) is expected to take its time in raising interest rates this year.

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Trump guilty on all 34 counts in hush money trial, historic first for a former U.S. president

Notable Snippet: Trump, 77, is the first U.S. president to be convicted of any crime. He faces three other pending criminal cases.

His sentencing for the hush money case was scheduled for July 11 at 10 a.m. ET by Manhattan Supreme Court Judge Juan Merchan.

That is just days before the Republican National Convention in Milwaukee, where the twice-impeached Trump is set to be formally confirmed as the GOP’s presidential nominee.

Trump is charged in federal court in Florida with crimes related to his retention of classified government records after he left the White House in January 2021, and to his attempts to prevent those documents from being recovered by federal officials.

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Sentiment

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Best,
Phan Vee Leung
CIO & Founder, TrackRecord