Dollar Dips As Headline And Core PCE Inflation Slowed

Dollar sees a significant dip in early US session after release of economic data showed a slower than expected headline PCE inflation and a slight decline in core PCE inflation. In contrast, Eurozone reported a tick up in core inflation for the same period. Stock futures rally on this news, while benchmark treasury yields dip Overall, the data, at least, doesn’t lend support to more aggressive tightening by Fed.

As the month draws to a close, both Yen and Greenback are poised to end as the worst performers. Despite a slight hiccup in response to today’s disappointing data, Canadian Dollar takes the crown as the strongest performer for the month, with Aussie Dollar taking the runner-up position, despite widespread selloffs this week. European majors are showing a mixed performance, with no clear winner among them.

In Europe, at the time of writing, FTSE is up 0.89%. DAX is up 1.25%. CAC is up 1.28%. Germany 10-year yield is down -0.014 at 2.408. Earlier in Asia, Nikkei dropped -0.14%. Hong Kong HSI dropped -0.09%. China Shanghai SSE rose 0.62%. Singapore Strait Times dropped -0.04%. Japan 10-year JGB yield rose 0.0161 to 0.400.

US PCE price index slowed to 3.8% yoy, core PCE down to 4.6% yoy

US personal income rose 0.4% mom, or USD 91.2B, matched expectations. Personal spending rose 0.1% mom, or USD 18.9B, below expectation of 0.2% mom.

Headline PCE price index rose 0.1% mom, below expectation of 0.5% mom. PCE core (excluding food and energy) rose 0.3% mom, below expectation of 0.4% mom. Goods prices fell -0.4% mom while services price rose 0.2% mom. Food prices rose 0.1% mom. Energy prices fell -3.9% mom.

From the same month one year ago, headline PCE price index slowed from 4.3% yoy to 3.8% yoy, below expectation of 4.6% yoy. PCE core (excluding food and energy) ticked down from 4.7% yoy to 4.6% yoy, matched expectations. Goods prices rose 1.1% yoy while services prices jumped 5.3% yoy. Food prices rose 5.8% yoy and energy prices decreased -13.4% yoy.

Also released, Canada GDP was unchanged for the month in April, below expectation of 0.2% mom growth. Goods-producing industries rose 0.1% mom while services-producing industries were flat. Overall, 11 of 20 industrial sectors posted increases.

Eurozone CPI slowed to 5.5% yoy in Jun, CPI core rose to 5.4% yoy

Eurozone CPI slowed from 6.1% yoy to 5.5% yoy in June, below expectation of 5.6% yoy. CPI core rose from 5.3% yoy to 5.4% yoy, matched expectations.

Looking at the main components, food, alcohol & tobacco is expected to have the highest annual rate(11.7%, compared with 12.5% in May), followed by non-energy industrial goods (5.5%, compared with 5.8% in May), services (5.4%, compared with 5.0% in May) and energy (-5.6%, compared with -1.8% in May).

Eurozone unemployment rate unchanged at 6.5%, EU down to 5.9%

Eurozone unemployment rate was unchanged at 6.5% in May, matched expectations. EU unemployment rate ticked down from 6.0% to 5.9%.

Eurostat estimates that 12.937m persons in the EU, of whom 11.014, in Eurozone, were unemployed in May 2023. Compared with April 2023, unemployment decreased by -75k in the EU and by -57k in Eurozone.

Swiss KOF fell to 90.8, third decline in a row

Swiss KOF Economic Barometer dropped slightly from 91.4 to 90.8 in June, above expectation of 89.2. That’s the third consecutive monthly decline.

KOF said: ” The downward movement in the Barometer is primarily caused by bundles of indicators that capture foreign demand. Here, the outlook continues to deteriorate.

“The indicators covering private consumption and the economic sector of other services also give a slightly negative signal. The indicators for manufacturing and construction, on the other hand, point slightly in a positive direction.”

Japan industrial production down -1.6% mom in May on vehicle sector

Japan’s industrial production recorded a sharper decline than anticipated, dropping by 1.6% mom in May. This marked the first contraction in four months, surpassing expectations of -1.0% decrease. According to survey by Ministry of Economy, Trade and Industry, manufacturers forecast industrial output to recover by 5.6% in June, only to fall again by -0.6% in July.

Among the 15 industrial sectors, 12 reported falling output, with only three seeing rise in production. Notably, motor vehicle sector bore the brunt of the decline, experiencing substantial -8.9% slump from the previous month, with passenger cars and auto body parts being the significant contributors.

Also released, the country’s unemployment rate remained unchanged at 2.6%, as expected. The number of jobless individuals decreased by -30k from the prior month, standing at 1.77 million. However, the Ministry of Health, Labor and Welfare revealed a slight downturn in the job market, with ratio of job openings to job seekers in May dropping to 1.31, down 0.01 point from April.

Meanwhile, Tokyo CPI edged down to 3.1% yoy in June, from 3.2% in May. Core CPI, which excludes fresh food, held steady at 3.2% yoy. Core-core CPI, excluding both food and energy, saw a mild decrease from 3.9% yoy to 3.8% yoy.

China PMI manufacturing ticked up to 49.0, still in contraction

June saw a modest uptick in China’s NBS PMI Manufacturing from 48.8 to 49.0, missing expectation of 49.5. The manufacturing sector remains in contractionary state, albeit with a slight improvement from the previous month.

In some details of PMI Manufacturing, new orders improved slightly, climbing to 48.6 from May’s 48.3. However, new export orders saw a five-month low at 46.4, suggesting weakening demand from overseas. Employment fell from 48.4 to 48.2.

In parallel, PMI Non-Manufacturing dropped from 54.5 in May to 53.2 in June, underperforming 53.7 forecast. This decline marks the weakest reading index since December. Employment sub-gauge for non-manufacturing sector fell noticeably, from 48.4 to 46.8.

Additionally, PMI Composite, which combines both manufacturing and service sector activity, declined from 52.9 to 52.3. This lower figure highlights a broader slowdown in China’s economic activity beyond manufacturing alone.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.0836; (P) 1.0888; (R1) 1.0917; More…

EUR/USD dipped to 1.0834 earlier today but quickly recovered. It’s still trying to defend 55 D EMA. Intraday bias stays neutral first. On the upside, break of 1.1011 will resume the rise from 1.0634 and target 1.1094 resistance. Decisive break there will resume larger up trend from 0.9534. However, firm break of 1.0834 will turn bias to the downside for 1.0634 support instead.

In the bigger picture, as long as 1.0515 support holds, rise from 0.9534 (2022 low) would still extend higher. Sustained break of 61.8% retracement of 1.2348 (2021 high) to 0.9534 at 1.1273 will solidify the case of bullish trend reversal and target 1.2348 resistance next (2021 high).

Economic Indicators Update