The dollar index (DXY00) Thursday rose +0.45% on the strong U.S. personal spending report of +0.8% m/m, which indicated resilience in U.S. consumer spending. The dollar rallied despite a -3 bp decline in the U.S. 10-year T-note yield to 4.08%, driven by a generally favorable U.S. PCE deflator report.
The U.S. Jul PCE deflator, the Fed’s preferred inflation measure, rose by +0.2% m/m and +3.3% y/y, which was in line with market expectations. The U.S. Jul core PCE deflator rose by +0.2% m/m and +4.2% y/y, which was also in line with expectations.
On a year-on-year basis, the Jul PCE deflator report of +3.3% was up from June’s 2-1/4 year low of +3.0% but remained far below the 4-decade high of 7.0% posted in June 2022. Meanwhile, the Jul core PCE deflator of +4.2% was up from June’s 1-1/4 year low of 4.1%, but remained far below the 4-decade high of +5.4% posted in Feb 2022.
On a 3-month annualized basis, the Jul PCE deflator fell to a new post-pandemic low of +2.1%, and the core deflator fell to a new post-pandemic low of +2.9%.
U.S. Jul personal spending rose +0.8% m/m, slightly stronger than market expectations of +0.7%. Jul personal income rose +0.2% m/m, slightly weaker than expectations of +0.3% m/m.
The weekly U.S. initial unemployment claims report of -4,000 to 228,000 showed a slightly stronger labor market than expectations for a rise to 235,000. However, continuing claims rose by +28,000 to 1.725 million, which showed a weaker labor market than expectations for a report of 1.706 million.
In a dovish comment, Atlanta Fed President Bostic said, “I think we should be cautious and patient and let the restrictive policy continue to influence the economy, lest we risk tightening too much and inflicting unnecessary economic pain.”
EUR/USD (^EURUSD) fell -0.71% on dollar strength. USD/JPY (^USDJPY) fell -0.59%.
There was a slew of overseas economic news released Wednesday night.
In Europe, German retail sales fell by -0.8% m/m and -2.4% y/y, weaker than expectations of +0.3% m/m and -1.4% y/y. German unemployment rose by +18,000, which showed a stronger labor market than expectations of +10,000. The French consumer spending report of +0.3% m/m and -1.1% y/y was in line with market expectations.
The Eurozone preliminary Aug CPI rose by +0.6% m/m and +5.3% y/y, stronger than expectations of +0.4% m/m and +5.1% y/y. The Eurozone Aug CPI of +5.3% y/y was unchanged from June’s level of +5.3%. Meanwhile, the Aug core CPI eased to +5.3%, down from July’s +5.5%, and was in line with market expectations.
Japan’s July retail sales rose by +2.1% m/m and +6.8% y/y, stronger than expectations of +0.8% m/m and +5.5% y/y. Japan’s July preliminary industrial production fell by -2.0% m/m and -2.5% y/y, weaker than expectations of -1.4% m/m and -1.4% y/y. Japan’s July housing starts fell by -6.7% y/y, weaker than expectations of -1.3% y/y and weaker than June’s report of -4.8%.
October gold (GCV3) Thursday closed -7.00 (-0.36%), and Sep silver (SIU23) closed -0.262 (-1.06%). Precious metals prices saw some long liquidation pressure after the rally seen in the past two weeks. Silver failed to receive much of a boost from the strong U.S. personal spending report. Gold continues to suffer from the liquidation of gold holdings by funds after long gold holdings in ETFs fell to a 3-1/3 year low Tuesday.
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
