Income

MARKETS LIVE Spending, income, inflation, sentiment: consumers are singing the blues

  • Major US Indices Turn: Nasdaq, S&P 500 Now High, Dow Plunges
  • Technology leads the S&P sector winners; lowest energy group
  • Euro STOXX 600 index down ~1.4%
  • Dollar, bitcoin down slightly; rude, gold falls
  • 10-year US Treasury yield slips to ~1.79%

January 28 – Welcome home to real-time market coverage from Reuters reporters. You can share your thoughts with us at [email protected]

SPENDING, INFLATION, INCOME, SENTIMENT: CONSUMERS SING THE BLUES (1106 EST/1606 GMT)

Friday’s data joined in unison to sing a song in a minor key about the consumer, who contributes about 70% to the US economy.

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U.S. consumers tightened their purse strings in December even as incomes edged up, according to the Commerce Department’s Personal Consumer Expenditure (PCE) report. Read more

Adjusted consumption (USGPCS=ECI) fell 0.6%, in line with consensus, and a downwardly revised growth reversal of 0.4% from November.

“Spending was hit hard by a combination of Omicron’s impact on discretionary services and people’s willingness to visit malls, as well as a void left by earlier-than-weekend holiday shopping. usual,” writes Ian Shepherdson, chief economist at Pantheon Macroeconomics.

Personal Income (USGPY=ECI) rose 0.3%, and while this is a lower number than analysts had expected, it is based on the upward-revised rise of 0, 5% of the previous month.

As a result, the savings rate – the difference between disposable income and spending – rose to 7.9%.

The savings rate is seen by many as an indicator of consumer sentiment, which the University of Michigan has a few words to say about, below.

Personal consumption

But first, the most closely watched component of the PCE report – the price index (USPCE=ECI) – showed a slightly colder-than-expected monthly gain of 0.4%, a welcome deceleration from the lows. increase of 0.6% from the previous month.

But year-over-year growth in the Core PCE (USPCE2=ECI) – which excludes volatility in food and energy prices, and is the Fed’s preferred inflation benchmark – was higher by 10 basis points forecast at 4.9%, warmer than November’s 4.7%. to print.

Powell & Co has made it clear, particularly this week, that it intends to take off its gloves and fight stubbornly persistent inflation by raising key interest rates more aggressively than expected. many market players.

Fed funds futures are now seeing five such rises this year, starting in March.

“The latest data supports officials’ pivot to tackling high prices by ending asset purchases and initiating rate hikes that will be followed by balance sheet normalization,” writes Rubeela Farooqi, chief economist at the United States at High Frequency Economics.

The chart below shows the Core PCE, along with other major indicators, and how long they have climbed well above the central bank’s 2% average annual inflation target.

Inflation

Consumer sentiment turned colder than initially thought in January, falling to its lowest level in a decade according to the final reading of consumer sentiment from the University of Michigan (USUMSF=ECI).

The index is 1.6 lower than the initial take at 67.2, a steeper drop than expected as consumer attitudes about current conditions and near-term expectations have both deteriorated more than economists expect. had planned it.

“Although their primary concern is rising inflation and falling real incomes, consumers may misinterpret Fed policy moves to slow the economy as part of the problem rather than part of the solution. “, writes Richard Curtin, chief economist at UMich. “The danger is that consumers will overreact to these small nudges, especially given the uncertainties surrounding the coronavirus and other heightened geopolitical risks.”

One-year and five-year inflation expectations held steady at 4.9% and 3.1%, respectively. It should be noted that the UMich one-year expectations and the PCE core inflation are in agreement.

UMich

Finally, employment costs (USEMPC=ECI) rose 1% in the final months of last year, 0.2 percentage points below consensus, while wages in the fourth quarter rose at a slightly faster rate of 1.1%, according to the Labor Department. Read more

“With labor force participation on the rise and excess demand measures flattening in recent months, it is reasonable to expect that wage growth is unlikely to pick up dramatically,” he said. Shepherdson. “In the meantime, this report eases the immediate pressure on the FOMC to act aggressively; the sighs of relief from the Fed Towers should be audible on Wall Street.”

Salary costs

Wall Street again oscillated between green and red and back again following a tumultuous week marked by mixed earnings, Fed concerns and growing geopolitical tensions.

At last glance, the S&P (.SPX) and Nasdaq (.IXIC) are green and the Dow (.DJI) is down. But blink, and they will change.

(Stephen Culp)

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WALL STREET LOSES GROUND AFTER THE OPEN (1012 EST / 1512 GMT)

Wall Street’s leading averages lost ground on Friday after data showed U.S. consumer spending tumbled in December, suggesting the economy lost steam amid tangled supply chains and infections that are raging at COVID-19, while annual inflation has been rising at a pace last seen in the early 1980s. Read more

Equity futures gained ground as the data was released, indicating some relief from investors that inflation, which remains elevated, was in line with expectations. But as the indexes opened, they quickly reversed to turn red shortly after opening.

In addition, major banks were adjusting their expectations for Federal Reserve interest rate hikes, which are expected to begin in March this year, with Bank of America economists saying on Friday that they now expect the Federal Reserve is raising rates by 25 basis points seven times this year to fight inflation. Read more

“What the market wants to know now is whether or not Monday’s low will hold in the major indices. They want to see earnings that are strong enough to offset future Fed tightening,” said Adam Sarhan, chief executive. of 50 Park Investments.

“The reason we have so much volatility is because we have so much uncertainty. You just don’t know what’s going to happen when it comes to Fed tightening… Will it be too much? tightened and will it send us into a recession or will it be a soft landing.”

Here is your morning trading snapshot:

Wall Street turns red

(Sinead Carew)

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DROP REACHES 9-YEAR HIGH (0900 EST/1400 GMT)

The percentage of individual investors with a bearish outlook for the US stock market hit a 9-year high in the latest sentiment survey from the American Association of Individual Investors (AAII).

AAII reported that bearish sentiment, or expectations that stock prices will fall over the next six months, rose 6.2 percentage points to 52.9%, holding above its historical average of 30, 5% for the 10th consecutive week. Additionally, this particular reading is the highest since April 11, 2013 (54.5%) and is the 41st highest bearish sentiment reading in the history of the survey.

Bullish sentiment, or expectations that stock prices will rise over the next six months, rose 2.2 percentage points to 23.1%, still significantly below its historical average of 38, 0%. Bullish sentiment levels are now below the historical average for 10 straight weeks.

Neutral sentiment, or expectations that stock prices will remain essentially unchanged over the next six months, slipped 8.4 percentage points to 23.9%. Neutral sentiment was last lower on September 2, 2021 (23.2%).

With these changes, the bullish-bearish spread has fallen to -29.8 from -25.8 last week. This is the most negative spread since April 2013:

AAAI01282022

(Terence Gabriel)

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Terence Gabriel is a market analyst at Reuters. Opinions expressed are his own.

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