• US April PCE core inflation 4.7% vs 4.6% expected
• US April durable goods orders 1.1% versus -1.0% expected
• US advance good trade balance $-96.77 billion versus $-85.7 billion expected
• US April wholesale inventories -0.2% vs +0.0% expected
• Fed’s Mester: Fed has made slow progress on inflation. It’s concerning
• Republican House negotiator says ‚major issues‘ still not worked out on debt ceiling
• Atlanta Fed GDPNow tumbles to 1.9%
• ECB’s Makhlouf: Haven’t seen wage settlements that raise concerns on a eurozone level
• Dallas Fed April trimmed mean PCE price index +4.4% vs +3.8% prior
• Canadian government fiscal year deficit cut in half
• Goldman Sachs and BofA see a ‚close call‘ on June Fed but market now sees 70% hike odds
• Euro longs retreat in the latest week of CFTC data
• Baker Hughes total rig count down -9 in the current week
• IMF sees US growth at 1.7% this year and 1.0% in 2024
• IMF raises Italy’s 2023 GDP forecast to 1.1% from 0.7%

Markets:

• WTI crude oil up 96-cents to $72.79
• Gold up $6 to $1946
• US 10-year yields flat at 3.81%
• S&P 500 up 1.4%
• GBP leads, JPY lags

The odds of a June Fed hike have risen to 70% from 50% today and that tells the story in FX, with the dollar gaining, though not exactly in a straightforward way. Both the pricing numbers and the consumption numbers were hot in the PCE data and the big winner was USD/JPY, which hit a new high for the year.

Initially it was a broad USD rally but it was more back-and-forth later as the market also weighed the stronger economic prospects. Flows into US tech are also a seemingly-unstoppable force as well, with the Nasdaq gaining another 2.2% on the AI boom.

The pound managed to hold off the US dollar but fell 90 pips from its highs before bouncing late.

Monday is a holiday in the US so there was some position squaring into the weekend, particularly in bonds as longs didn’t want to be caught offside on a debt ceiling deal and a wave of Treasury issuance. Yellen pushed back the deadline to at least June 5, so the charade may go on for another week.

The bigger story though is that the dollar appears to be breaking out on a number of fronts and there’s no US weakness yet in the data. Will next Friday’s non-farm payrolls report change that? Tune in to find out.

Have a good (long) weekend.

For those in the UK and US.

This article was written by Eamonn Sheridan at www.forexlive.com.

Treasury Secretary Janet Yellen has conjured a few extra days for US politicians to grandstand. She now says that extraordinary measures won’t be exhausted until at least June 5.

House Republican leader McCarthy has said his deadline is June 1 but you can never trust a politician.

In any case, a deal will get done and the US won’t default, the same as always. I think the market has already moved on.

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

There were non-stop flows into US stock markets on Friday, led by the Nasdaq:

• S&P 500 +1.3%
• Nasdaq Comp +2.2%
• DJIA +1.0%
• Russell 2000 +1.1%
• Toronto TSX Comp +0.8%

On the week:

• S&P 500 +0.3%
• Nasdaq Comp +2.4%
• Russell 2000 flat
• Toronto TSX Comp -2.1%

Broadcom was a big winner on Friday, gaining 11% with Qualcom and Intel making some headway as the chip rally broadens out.

This is the fifth week in a row of gains for the Nasdaq and it’s very much looking like the double bottom in Oct/Dec was the low.

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

The speculative market remains far too long euros but pared back the position in the latest week of CFTC data, in what might be a sign of what’s to come.

the EUR’s net speculative long positioning witnessed a significant decrease, dropping to 173,736 contracts compared to 187,089 in the previous week. As investors appeared to cut their bullish bets, the shift suggests some caution may be seeping into the market sentiment regarding the euro’s performance.

The Japanese yen experienced a considerable surge in short positions, hitting 80,660, marking a notable increase from the previous 64,791. This indicates a growing bearish outlook among traders on the yen. Similarly, AUD saw a decrease in its short positioning to 49,081, a slight relief from the preceding week’s 54,594.

In contrast, the British pound’s long position fell marginally from 12,593 to 11,589.

The Swiss Franc saw its small short position cut in half to 903 from the previous week’s 1,859, signalling a potential shift in traders‘ sentiment towards a less bearish outlook.

In net week’s data, I would expect to see more signs of US dollar buying as the dollar surged, inflation rose and the debt ceiling fiasco neared a conclusion. Given the size of the euro net position, it’s particularly vulnerable.

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

Higher interest rates aren’t yet hitting the consumer hard or bringing inflation back to target, according to today’s April PCE report. Inflation rose 4.4% y/y in an acceleration from 4.2% previously while personal spending surged 0.8% in the month.

Bank of America has reaffirmed its base case expectation that the Federal Reserve will not implement a rate hike in June, though the bank maintains an inclination towards a hike in the future, noting that it’s a „close call“.

According to BofA, three conditions need to be met for a Fed rate hike: 1) strong economic data, 2) an increase in the debt ceiling, and 3) subdued regional bank stress.

The bank also believes that inflation remains too persistent for the Fed to commit to a prolonged pause in rate increases. Even if the Fed decides to forego a rate increase in June, BofA suggests that it will keep the possibility of a July hike on the table.

Separately, Goldman Sachs economists continue to chase their tails. After calling for a pause after the March bank stress and then seeing a hike anyway, they’re now teetering with their June call.

„While we continue to expect the Fed to pause deletion in June, this morning’s stronger-than-expected consumer spending and inflation data and the wide range of views by FOMC participants on the appropriate policy path make this a close call,“ Goldman Sachs economists wrote today.

The market is pricing in a 70% chance of a hike in June and a 100% chance of a hike in either June or July.

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