Upcoming Release of US August PCE: What Impact on the Market?

On September 29th, the US will release the August PCE report. The market generally anticipates a year-on-year increase of 3.5% in the August PCE Price Index, while the core PCE Price Index is expected to maintain a sequential growth rate of 0.2%. If the data exceeds expectations, it will increase the likelihood of another interest rate hike by the Federal Reserve, which would be beneficial for the US dollar.

On Friday, September 29th, the US will release the August PCE inflation report. Due to the continued surge in energy prices, it is widely expected that the August PCE price index will increase by 3.5% year-on-year, rebounding from the previous value of 3.3%. The core PCE price index is anticipated to decrease from 4.2% in July to 3.9% year-on-year, with a month-on-month growth rate expected to remain at 0.2%.

【Source：MacroMicro】

Furthermore, considering the strong labor market, it is projected that personal income data for August will rise, climbing from a 0.2% increase compared to the previous period to 0.5%. However, due to the end of summer vacation, spending is likely to cool down, with expectations decreasing from 0.8% to 0.4%.

If any one or both of the key indicators in personal spending and the Fed's favored inflation gauge, the core PCE data, unexpectedly show an upward trend, it would increase the likelihood of the Fed raising interest rates again.

However, analysts believe the chances of surprises are low. Looking at the income data, there was an increase of $7 billion in July, but spending increased by $144.6 billion. Credit card borrowing continues to rise while savings continue to decline.

Higher outstanding credit card balances and lower savings rates indicate that the current pace of consumption is unsustainable, and over time, the actual PCE growth rate will inevitably decline.

Moreover, although the US economy still exhibits some resilience, recent deterioration in PMI and signs of slowing economic momentum have further diminished the necessity for the Fed to raise interest rates.

According to CME data, the market currently anticipates a 22.4% probability of a rate hike in November and a 42.2% probability in December.

【Source：CME】

Generally speaking, if PCE data exceeds expectations, it will negatively impact US stocks and support the US dollar. Conversely, if the data falls below expectations, it will be positive for US stocks and negative for the US dollar. However, if the data is mixed, market performance will be more influenced by emotions and other factors.

For example, when the July PCE inflation grew moderately as expected but consumer spending was strong, the benchmark 10-year US Treasury yield, known as the "anchor of global asset pricing," rose briefly after the data release and then retreated. The upward momentum in the US stock market faded, with major indices briefly experiencing declines. The US dollar index extended its gains, moving away from a two-week low.

In the end, only the Nasdaq Composite Index closed higher that day, while the US dollar index increased by 0.5%, partly benefiting from the decline in the euro. This came as the unexpected slowdown in the harmonized CPI in the eurozone for August raised concerns about stagflation in the region.

Therefore, apart from the US August PCE data on Friday, we should also pay attention to the harmonized CPI data for September in the eurozone. If the euro weakens, it will further support the US dollar; conversely, if the euro rebounds, there will be a risk of a pullback in the US dollar.

From a technical perspective, the US dollar index is still within an upward channel, but the RSI indicator is in the overbought zone, increasing the risk of a pullback. The support level is seen at 105.6, while the resistance level stands at 107.2.

【Source：TradingView】