Market Flux
Open the Terminal

Top Story

Softer US Core PCE at 3.0% Sparks Stock Rally and Pushes Goldman to Delay Fed Hike Forecast to December

By Market Flux···1 min read
Read this in the Market Flux app

A cooler-than-expected US inflation reading for August sent stocks higher and reduced pressure on the Federal Reserve to raise rates in October. The core PCE price index rose 3.0% year-over-year, well below the 3.3% consensus estimate, and increased just 0.2% on a monthly basis. Second-quarter GDP was also revised up to 2.2% annualized, above the 1.5% estimate, while September ADP private payrolls came in at 90,000 against an estimate of 73,000.

Goldman Sachs responded by pushing its forecast for the next Fed rate hike from October to December, and said there is now a strong chance the Fed ultimately decides no additional hikes are needed at all. Goldman revised its Q4 core inflation forecast to 3.0% quarter-over-quarter, a significant step below the Fed's own median projection of 3.4%. The dollar index fell 0.17% on the reduced rate-hike expectations, though Commerzbank cautioned the currency's recent strength remains fragile heading into the October decision.

US equity markets climbed on the data, with the Nasdaq Composite up 1.02% to 27,072 and the S&P 500 gaining 0.58% to 7,715 as of midday, while the Dow Jones Industrial Average was marginally lower at 51,336. Global bond yields fell initially but the 10-year Treasury yield subsequently turned higher as traders shifted focus to Friday's jobs report. Bitcoin steadied near $83,700, with rising Treasury yields limiting crypto gains despite the softer inflation print.

In contrast, the euro zone faced the opposite problem. September data showed inflation accelerating across major European economies, driven by an energy shock, with Spain's harmonized rate jumping to 5.0% from 4.6% in August, its highest in several years, as fuel and lubricant prices surged. The European Central Bank faces a difficult policy dilemma, with the euro near a one-year low and markets debating whether the inflation surge will ultimately force additional ECB hikes or prove temporary enough to allow a pause.

© AI-generated summary is provided by Market Flux

Sources

  1. WsjFed’s October Decision Could Determine Dollar’s Direction
  2. ReutersWall St climbs as cooling inflation tempers Fed rate-hike concerns
  3. CablefxmacroICYMI:🇺🇸❗️*U.S. AUG. CORE PCE PRICE INDEX RISES 3.0% Y/Y; EST. 3.3% *U.S. Q2 GDP REVISED UP TO 2.2% ANNUAL; EST. 1.5% * U.S. SEPT. ADP PRIVATE PAYROLLS ROSE 90K; EST. 73
  4. CNBC10-year Treasury yield turns higher as traders look past inflation data, await jobs report
  5. Capital_HungryI was expecting way more volatility in greed train bias from the lower than expected PCE, inflation data was even lower than I thought about which was great but IMO I think it is gearing up for Friday fire works with higher unemployment rate so lets maintain same HTF bias on XAU, US30, SPX, BTC etc and not lose conviction. Still same entry AOIs 1hr/ 4hr, flows and structure.
  6. u.todayBitcoin, Ether, XRP Force 2,633% Liquidation Imbalance Amid Sticky US Inflation Short Squeeze
  7. theblock.coBitcoin steadies as soft PCE cools October Fed rate hike bets
  8. NasdaqDollar Slips on Reduced Fed Rate Hike Chances
Show 16 more
  1. InvestingFTSE 100 today: Stocks close lower after cooler-than-expected U.S. inflation data
  2. Seeking AlphaTen consumer discretionary stocks that fell the most over the past month
  3. MarketwatchGold is supposed to be a safe haven when inflation surges. So why isn’t it working that way now?
  4. Sino_Market🇺🇸Goldman Sachs moves its forecast for the Fed's next rate hike from October to December. ( )
  5. oilprice.comEurope Gets Hit by Another Energy-Driven Inflation Shock
  6. FXStreetNewsThe Euro is near a one-year low: Inflation could trigger its rebound, not its fall Read More!➡️ #Europe #Forex
  7. DeItaoneGOLDMAN PUSHES NEXT FED HIKE TO DECEMBER Goldman Sachs now says an October Fed hike is unlikely, pushing its forecast for the next increase to December after softer inflation data. Core PCE fell to 3.01% YoY, well below expectations, with Goldman now forecasting 3.0% Q4/Q4 core inflation vs. the Fed median of 3.4%. Goldman also sees a strong chance the Fed ultimately decides no additional hikes are necessary.
  8. YahooFinance*A lot* happened in the market this month, and AI and the Fed dominated conversations. What didn't get enough attention in September? 🤔 @juleshyman: $MRNA @KevinKellyIntel: Biotech @lizrhoffman: All things space @ChristineLShort: $CCL and the $$ being spent on cruises @turneyduff: GLP-1s Drop your answer below. ⬇️
  9. fxempire.comXRP Price Prediction: Lower Rate Hike Odds Put $1.80 in Focus
  10. BusinessTraders pared back their expectations for the Federal Reserve to raise interest rates in October after the central bank’s preferred measure of inflation accelerated by less than expected
  11. SemaforUS Treasury yields stay near 25-year highs due to investors’ fears over inflation, persistent fiscal largesse, and geopolitical uncertainty.
  12. CoinGapeMedia🚨 Goldman Delays Rate Hike Forecast @GoldmanSachs pushed its forecast for a second #Fed rate hike to December after softer #PCE inflation data, saying an October hike may be unnecessary. 🔗 Know more in comments
  13. MikeZaccardiGS: Pushing Back Fed Rate Hike on Lower Core PCE Inflation -Q2 GDP Revised Up to +2.2% -Trade Deficit Widens More Than Expected -Lowering Q3 GDP Tracking to +3.3%
  14. Cointelegraph🇺🇸 UPDATE: Polymarket puts October Fed rate hike odds at 37%, with a 61% chance of no change.
  15. ZerohedgeUBS mid-day rates note: Treasuries are giving back their post-PCE gains as markets refocus on the strength of US growth, with 10-year yields back above 5.25% and 30-year yields north of 5.6%. While core PCE came in softer at 0.2% m/m after rounding, a sizable upward revision to Q2 GDP reinforced the view that the economy is running materially stronger than the Fed anticipated heading into the next few meetings. The initial reaction saw a 15.3k FV block buyer step in following the data, but that move has since been fully retraced as rallies continue to find sellers. Even so, FOMC meeting gaps remain lower by 8-9bp across the curve, helped by Williams' comments on Tuesday. October pricing has fallen roughly 9bp since yesterday and now implies only 8.5bp of additional tightening. Swap spreads are modestly tighter, led by the belly, although they have widened off the lows as paying interest tied to convexity hedging, or anticipation of it, continues to provide support. Positioning remains a focus, with many fast-money accounts still running net-long belly spread exposure. The desk has also seen demand for front-end spread widening trades and interest in TU/FV spread-curve steepeners. Curve steepening remains a dominant theme. The spot curve is outperforming forwards, prompting interest from fast-money accounts in leveraged forward steepeners on expectations that forwards will catch up. In cash Treasuries, buying has been concentrated in the five-year sector, while the month-end extension of 0.07 years is broadly in line with historical averages. Inflation markets are firmer in the front end alongside the rise in oil, although some accounts have looked to fade the move. Breakevens are wider overall, with buying interest in five-year inflation products, while 30-year breakevens have attracted sellers around the 230bp area.
  16. BenzingaTom Lee (@fundstrat) says cooling inflation could give the Fed room to “walk back hawkishness,” which would be “good for stocks.” New York Fed President John Williams says there’s “no need for urgency” on another rate hike.