Indices gain, USD drops ahead of US inflation data (1:30 pm GMT)
GDP revision pushed Wall Street lower
Final release of US GDP report for Q3 2022 showed an upward revision. This has increased concerns on the market as it mean that there is more capacity to conduct additional monetary policy tightening. US economy grew at an annualized pace of 3.2% in Q3 2022, up from 2.9% pace signaled in flash reading. Revision was driven by consumption which was revised from annualized +1.7% to +2.3%. Wall Street indices were dropping as much as 3-4% following the release. However, some of the losses were recovered by the end of the day.
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PCE report, that will be released today at 1:30 pm GMT, is an important piece of data to watch as it is the Fed's preferred inflation gauge. It should be noted that Fed does not expect PCE inflation to return to target over its forecast horizon but it expects headline gauge to slow down to 5.6% and core gauge to 4.8% this year. Market expectations for today's reading are very similar with headline PCE expected at 5.6% and core at 4.6% YoY.
Difference between PCE and CPI inflation is the highest since 1980s. If PCE fails to slow in similar fashion as CPI inflation did, expectations for more tightening from Fed may increase. In spite of Fed's own forecast of above-5% rates next year, market currently sees peak rate closer to 4.9%. Source: Bloomberg
US500
US500 dropped significantly yesterday, reaching the lowest level since November 10, 2022. Nevertheless, buyers managed to keep the price above 50% retracement of the latest upward impulse. Month-to-date drop for the index is around 6% and even if it gets trimmed down to 5%, monthly candlestick would still engulf last month's candlestick (bearish engulfing pattern). However, should PCE inflation drop in-line with expectations, buyers may attempt to push the index back above 3,900 pts mark. Source: xStation5
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