The Federal Reserve has received another piece of positive data.
On the evening of July 26th Beijing time, the US Department of Commerce released data showing that the year-on-year growth rate of the US Personal Consumption Expenditures (PCE) price index in June fell to 2.5%, the lowest level in five months; The month on month growth rate has increased to 0.1%, which is in line with market expectations; The core PCE price index, the most favored inflation indicator by the Federal Reserve, grew at a year-on-year rate of 2.6%, the lowest level since March 2021.
Wall Street analysts pointed out that the US PCE price index rose moderately in June, consumer spending remained stable, and coupled with the unexpected growth of US Q2 GDP announced on Thursday, the US economy released more signals of a "soft landing". For the Federal Reserve, which hopes to cool inflation without damaging the economy, this is undoubtedly a major positive news.
Affected by this, after the opening of the US stock market, the three major indexes collectively opened high and rose. As of 23:00 Beijing time, the Dow Jones Industrial Average surged by more than 650 points, with a rise of 1.64%; The Nasdaq rose 0.77%, while the S&P 500 index rose over 1%. On the eve of the rebound in the US stock market, there was just a fierce wave of selling, which dealt a huge blow to the confidence of the US stock market. Renowned investment research firm BCA Research warns investors in its latest report that the US stock market may be about to peak and a bear market is imminent.
Positive news from the Federal Reserve
On the evening of July 26th Beijing time, the US Department of Commerce released data showing that the year-on-year growth rate of the US Personal Consumption Expenditures (PCE) price index in June fell from 2.6% in May to 2.5%, the lowest level in five months and higher than the expected 2.4%; The month on month growth rate increased from 0% in May to 0.1%, which is in line with market expectations.
Data shows that in June, the Federal Reserve's most favored inflation indicator - the core PCE price index (excluding volatile food and energy prices) - grew at a year-on-year rate of 2.6%, unchanged from the previous value and the lowest level since March 2021, slightly higher than the expected 2.5%; The month on month growth rate rebounded from 0.1% in May to 0.2%, in line with market expectations.
Among them, consumer spending in the United States increased by 0.3% month on month in June, which is in line with expectations; The growth rate for May was revised up from 0.2% to 0.4%; Actual consumer spending (adjusted for inflation) increased by 0.2% month on month, lower than the expected 0.3%; The growth rate for May was revised up from 0.3% to 0.4%.
Wall Street analysts pointed out that the US PCE price index rose moderately in June, consumer spending remained stable, and coupled with the unexpected growth of US Q2 GDP announced on Thursday, the US economy released more signals of a "soft landing". For the Federal Reserve, which hopes to cool inflation without damaging the economy, this is undoubtedly a major positive news.
The data shows that the cooling of the labor market is beginning to translate into a weakening of purchasing power. Personal income increased by 0.3% month on month in June, which is half of the growth rate in May; On the basis of inflation adjustment, the growth of disposable income has slowed down to 0.1%.
It is worth noting that the so-called super core PCE (core services after deducting housing) price index rose by 0.2% month on month and increased to 3.43% year-on-year, further slowing down from May. This is the 50th consecutive month of price increase for the super core PCE.
Cherry Lane Investments analyst Rick Meckler said that this fairly good report further supports the notion of a "soft landing" for the US economy.
After the data was released, the short-term decline of the US dollar index DXY expanded to 20 points and is now at 104.29; Spot gold rose more than 1% during the day and is now trading at $2388.06 per ounce.
After the opening of the US stock market, the three major indexes collectively opened higher and rose higher. As of 23:00 Beijing time, the Dow Jones Industrial Average surged more than 650 points, with a rise of 1.64%; The Nasdaq rose 0.77%, while the S&P 500 index rose over 1%. Among them, chip stocks rebounded across the board, with ASML rising by over 3%, Qualcomm rising by over 2.5%, Nvidia rising by over 1%, and TSMC's US stock rising by 0.76%.
At the same time, European stock markets also launched a full-scale counterattack, with the European Stoxx 50 index rising 0.9%, the UK FTSE 100 index rising 1.1%, the French CAC40 index rising over 1%, and the German DAX30 index rising 0.42%.
Interest rate cuts are imminent
For key data such as the recently released Personal Consumption Expenditure Index (PCE), Wall Street analysts said that the data, which is basically in line with expectations, has made the market optimistic that the Federal Reserve is making progress in inflation and therefore does not need to remain as aggressive in interest rate policy as it is now. It is highly likely that the interest rate cutting cycle will begin in September this year.
Chris Larkin, head of trading and investment at Morgan Stanley, said that overall, this week has been a good week for the Federal Reserve, with the economy appearing to be on a solid foundation and PCE inflation remaining largely stable.
Analyst Cameron Crise stated that the US PCE price index is roughly in line with expectations, but after correction, the year-on-year change in core data is slightly higher than expected. But these data are not enough to prevent the Federal Reserve from initiating interest rate cuts in September, and there is no indication that the Fed needs to cut interest rates early or by more than 25 basis points.
Bret Kenwell, an analyst at financial investment services firm eToro, stated that the June PCE report in the United States largely met economists' expectations, while the year-on-year increase in the core PCE index was only slightly higher than expected. However, there is no indication in the report that inflation will unexpectedly accelerate. Combined with the lower than expected CPI report earlier this month and the recent trend of lower inflation data, this has given the Federal Reserve the green light to cut interest rates later this quarter.
Bret Kenwell pointed out that at next week's Federal Reserve meeting, all eyes will shift to Powell, and people hope and expect him to lay the foundation for the September rate cut. In recent years, the Federal Reserve has been very transparent, announcing its actions long in advance, adding more certainty, and the market likes certainty.
Danger Warning
It is worth noting that on the eve of the rebound in the US stock market, there was a fierce wave of selling, causing technology stocks to bleed and the market value of giant companies to evaporate severely. The S&P and Nasdaq both fell for three consecutive days, dealing a huge blow to the confidence of the US stock market.
The market is concerned that the US stock market has fallen into a typical third quarter curse. Renowned investment research firm BCA Research warns investors in its latest report that the US stock market may be about to peak and a bear market is imminent.
The analyst of the institution believes that the main reason for the peak of the US stock market is that the proportion of "wait-and-see cash assets" held by retail and institutional investors has hit a historic low, indicating that the market "lacks firepower" and there is not much cash available for investment in the market. In addition, the quantitative tightening policy of the Federal Reserve has reduced the money supply, which has reduced market liquidity and exacerbated the tightness of market funds.
Based on this, BCA Research recommends in the report that investors increase their holdings of government bonds and US dollar cash to reduce investment risks. Government bonds are considered a safer investment option, while US dollar cash can help investors reduce losses in the face of market volatility.
The report suggests that the US stock market is likely to peak soon and a bear market will begin. Global asset allocators should increase their allocation of government bonds rather than stocks. It is also reasonable to allocate a large amount of US dollar cash.
The analyst of the institution emphasized that the low proportion of investable funds and the overvaluation of the US stock market may become a turning point for the AI driven stock market rebound. At present, large technology companies such as Apple and Microsoft have carried out a large number of stock repurchases, but they cannot completely offset the risk of market downturn.