• US February PCE core inflation +2.8% y/y vs +2.8% expected
• Fed’s Powell: Today’s PCE report is ‚pretty much in line with our expectations‘
• Dallas Fed February trimmed mean PCE price index +3.4% vs +5.7% prior
• US oil output fell 6% in January — EIA
• A cryptic comment from Xi Jinping is making waves
• US February wholesale inventories +0.5% vs -0.3% prior
• US February advance goods trade balance -91.84B vs -90.51B prior
• Goldman Sachs: Anticipated Fed and ECB policy trajectories through 2025

Markets:

• Markets closed for Good Friday
• FX essentially unchanged

A holiday throughout global markets usually makes for a quiet news day but that wasn’t the case today with US PCE, Powell and some other odds-and-ends.

The PCE report had something for everyone but there was some US dollar selling in the aftermath. I suspect some of that was a sigh of relief that it wasn’t hot and some was due to the m/m core unrounded at +0.261% compared to +0.3% expected. Now some of that might have been because of an upward revision to January to +0.5% from +0.4% but the market will take the help where it can get it.

Powell himself struck me as incrementally more hawkish, though he did say that today’s PCE report was „pretty much in line with our expectations“ and „good to see“. At the same time, he said the Fed wants to see more inflation reports like last year, which indicates it’s not enough.

What struck me was that he didn’t highlight the opportunity to cut rates this year, though he wasn’t really asked about it. In the longer term, he said that if inflation stays sticky for longer, they will hold for longer (importantly, he didn’t say they would hike).

In any case, the early US dollar selling was slowly faded and we’re winding down the day exactly where it began. Monday is also a holiday in parts of the world (Europe in particular) so we might not be back to full throttle in markets. Watch Asia though with the BOJ’s Tankan and China’s manufacturing PMI.

Have a happy Easter.

This article was written by Adam Button at www.forexlive.com.

Traditional markets are closed today but bitcoin continues to tick over. Crypto often offers a view into risk sentiment and the 2% fall in BTC today might indicate some bearishness creeping in, particularly as the selling accelerated after Powell’s comments in San Francisco.

The Fed Chairman mostly stuck to the recent script.

„The economy is strong, we see very strong growth,“ he said, adding that risks are two-sided and that they will be watching data. Notably, he didn’t highlight that the Fed plans to cut rates this year as he previously had; though he wasn’t asked directly about it.

BTC was trading right at $70,000 before the comments and fell afterwards, though some of that might have been stops as the big figure and the European lows gave way.

For what it’s worth, I don’t think this move in BTC means too much, given where liquidity is and the size of the move (which is entirely within the range of the past 4 days).

This article was written by Adam Button at www.forexlive.com.

Goldman Sachs outlines its projections for the monetary policy paths of both the Federal Reserve and the European Central Bank (ECB) over the coming years. The firm expects the Fed to initiate a series of rate cuts starting in June 2024, eventually reaching a terminal rate range of 3.25-3.5%. In contrast, the ECB is forecasted to begin cutting rates in June 2024, with a series of reductions leading to a policy rate of 2.25%.

Key Points:

• Federal Reserve Outlook:
  • Holding Pattern: Anticipated to maintain the current fed funds rate range (5.25-5.5%) until June.
  • Rate Cuts: Projected to cut rates by 25 basis points in June, September, and December 2024, followed by four additional cuts in 2025, and one final cut in 2026.
  • Balance Sheet Adjustment: Expected reduction of the Treasury runoff cap from $60 billion to $30 billion monthly post-May FOMC meeting.

• European Central Bank Forecast:

  • Steady Stance: Predicted to hold the policy rate at 4.00% until a June cut.
  • Rate Reductions: Foreseen series of 25 basis point cuts per meeting, reducing the policy rate to 2.25% with a total of five cuts in 2024 and two more in 2025.

Conclusion:

Goldman Sachs provides a detailed forecast for the future actions of the Fed and ECB, suggesting a cautious approach towards easing monetary policy. While both central banks are projected to start cutting rates in June 2024, the pace and extent of these cuts differ, reflecting divergent economic conditions and policy considerations. This analysis offers valuable insights for market participants navigating the evolving interest rate environment.

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This article was written by Adam Button at www.forexlive.com.