VIEW US inflation tepid in April, consumer spending slows
NEW YORK, May 30 (Reuters) - U.S. inflation was benign in April, with retailers likely still selling inventory accumulated before the tariffs. The Personal Consumption Expenditures (PCE) Price Index rose 0.1% last month after being unchanged in March, data showed.
Consumer spending, meanwhile, which accounts for more than two-thirds of economic activity, rose 0.2% last month after an unrevised 0.7% jump in March.
MARKET REACTION:
STOCKS: U.S. stock futures pared losses after the PCE data.
BONDS: U.S. Treasury 10-year yields turned higher post-PCE.
FOREX: U.S. dollar was last down 0.3% against the yen at 143.78 yen
COMMENTS:
"Core PCE the Fed's preferred measure of inflation came in a little bit mild which is the direction the fed wants to see. However, we know that tariffs tend to be deflationary at first because higher prices hurt demand, so the Fed will be more focused on the next few inflation readings for the true impact of tariffs on inflation."
"While there were no surprises in the PCE number, markets were focusing their attention more on the U.S. China trade discussion which based on comments from Trump and Bessent seem to be hitting a roadblock."
"We haven't heard much from the Fed this year, and if the data continues like it has so far, then they are likely to stay in the background. This year has been all about tariff and trade policy and because there has been little in the way of inflation or unemployment surprises, the Fed has been able to stand aside and leave rates unchanged."
"At some point the tariff uncertainty has to be addressed – and if it can be done quickly enough before damage is done to the economy, then there can be a resumption of the bull market and we can go back to all-time highs, however, if it takes too long to get clarity and the economy begins to stall, then the Fed will have no choice but to cut rates aggressively – so for those looking for rate cuts, be careful what you wish for."
"The economic data this morning is supportive and positive but the market overall is still trying to sort out where we are in the trade war. So we went from a place where it felt as though, you know, investors had a pretty good handle on the direction of trade and tariffs. And now that picture has become very confusing. The focus for markets right now are where exactly do we stand and how long does it take to find an exit on this trade war highway."
"We had good numbers here on the inflation front, both on a monthly basis and yearly basis, and the fact that year-to-year top line inflation is at 2.1%. That's just a tenth of a percentage point from the Fed target."
"So that's good news. And in terms of personal income, that was much stronger than we expected spending in line with expectations 0.2 tenths of a percent is exactly what we were looking for. And that just simply means there's a lot of cautiousness out there on the part of consumers."
"Bottom line, I think this should alleviate some inflationary fears, but again the uncertainties over the trade war, which seem to be getting be worse by the day may not do justice to these numbers."
"But we still don't have the full effects of this trade war, you know. It's a very confusing situation at the moment. Things change on a daily basis."
"So I think you know that's why I said these numbers are likely to take a backseat in terms of the markets are concerned only because we have a lot of confusion over the real status of this trade war, and that includes the inflationary aspect."
"Real personal income excluding transfer receipts - a key measure of earning power - rose 0.3% for the month, which isn't bad at all. People chilled out from binge buying goods out of fear of tariffs to spending on services. Although the price index for durable goods shot up 0.5% for the month, the rotation into services helped push headline inflation ever closer to the Fed's target. The market-based reading of inflation is already below the Fed's target. Instead of worrying so much about inflation happening before job losses, the Fed might want to consider that the labor market will weaken first."
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Reuters
31 minutes ago
- Reuters
Trading Day: Market inflection points abound
ORLANDO, Florida, June 3 (Reuters) - By Jamie McGeever, Markets Columnist Stocks and the dollar rose solidly on Tuesday even though markets lacked a central, driving force - signs of weakening economic activity, cooling labor markets and disinflation are all reasons for caution, but risk appetite continues to be fueled by hopes that U.S.-China trade tensions will soon ease. In my column today I look at why foreign investors' exposure to U.S. assets may not be as high as feared. If it's not, the potential downside for Wall Street and Treasuries from diversification may be less severe. More on that below, but first, a roundup of the main market moves. If you have more time to read, here are a few articles I recommend to help you make sense of what happened in markets today. Today's Key Market Moves Market inflection points abound Evidence is mounting that global economic activity is slowing, but this is failing to move the dial much for markets. Investors know growth is slowing and that the second half of the year will be challenging, so that's already 'in the price'. Hopes of a de-escalation in the trade standoff between the U.S. and China, and for bilateral deals between the U.S. and other key trading partners soon are supporting risk assets. The S&P 500 hit a three-month high on Tuesday, while the Nasdaq and MSCI World index climbed to levels last visited in February. It is the strength on Wall Street, most latterly tech, that is lifting global stocks as benchmark Asian and European indices are flatlining. On the whole, policymakers continue to stress that they are data-dependent and will move on rates carefully and calmly. That was the message from various Fed officials this week and Bank of England Governor Andrew Bailey on Tuesday. It's a slightly different - although no less challenging - situation in mainland Europe, where figures on Tuesday showed disinflationary forces are driving consumer prices as much as anything else. Euro zone inflation dipped below the European Central Bank's 2% target in May, cementing expectations rates will be cut this week and later this year. Meanwhile, Switzerland experienced outright year-on-year deflation for the first time in four years, raising the possibility that the Swiss National Bank may soon reintroduce negative interest rates. Canada's central bank is expected to hold interest rates at 2.75% on Wednesday for a second meeting. Growth and inflation have been surprisingly sticky this year, and rates have been slashed by 225 basis points since last June. As UBS analysts note, markets are generally at an inflection point, waiting for the catalyst that will break them out of the narrow ranges that have broadly held since the U.S. and China announced a temporary reduction on tariffs on May 12. Even Wall Street and the dollar - one creeping higher, the other drifting lower - are awaiting a trigger for a proper breakout. Could the telephone call between U.S. President Donald Trump and Chinese leader Xi Jinping expected later this week be it? Foreign exposure to U.S. assets may be lower than feared It is widely believed that investors around the world have a disproportionately high exposure to U.S. assets, particularly stocks, an imbalance that could roil U.S. markets if corrected. But what if these fears are overblown? Several eye-popping statistics suggest that America's weight in world financial markets is even greater than its outsized economic might. Most strikingly, the U.S. net international investment position (NIIP), or foreign investors' holdings of U.S. assets less U.S. investors' holdings of overseas assets, at the end of 2024 was $26 trillion. That's nearly 24% of global GDP, up from 16% only two years earlier, a surge driven by foreigners' insatiable appetite for U.S. equities, mainly "Big Tech". Demand was so hot that, by some measures, the value of U.S.-listed stocks at the turn of the year represented 74% of total global market cap. That share was 60% six years ago, and less than half in 2011. But the attractiveness of dollar-denominated assets is now being questioned, as the often erratic policies of U.S. President Donald Trump have upset longstanding economic and geopolitical norms, making governments and investors question whether Washington is still a reliable partner on the global stage. The concern is that this eroding confidence triggers a reversal of the massive flows into Wall Street seen in recent years that has damaging spillover effects. Such a correction may not require outright selling. Given the scale of the flows involved, just less buying among foreign investors could be enough to cast a shadow over the world's most important stock market. And the running assumption is foreign investors don't have the capacity or willingness to increase their exposure to U.S. assets, creating a significant long-term downside risk for Wall Street, Treasuries and the dollar. "A structural shift is underway: the slow erosion of US economic dominance," analysts at Deutsche Bank wrote on Monday. But looked at another way, foreign exposure to U.S. assets may not be as high as initially meets the eye. That's the view of analysts at JP Morgan, who measure portfolio investment in U.S. bonds and equities as a share of countries' total household sector financial assets. They use a broad definition for a country's "household" sector, covering investments by institutions like insurance companies and pension funds that are ultimately made on behalf of households. Using a broad range of data, from central banks, U.S. Treasury and OECD household financial asset flows, they measure the ratio of U.S. equity and bond holdings relative to household financial assets in each country. They find that "relative to the total financial assets of households in the rest of the world, the allocations to U.S. assets typically stand at around 10-20%." As a result, they are "skeptical of the idea that foreign investors hold too much of U.S. assets." Given that U.S. equities account for more than 70% of the MSCI global market cap and dollar-denominated bonds represent around 50% of global bond indices, according to JP Morgan estimates, the 10-20% exposure of foreign investors to U.S. assets does appear surprisingly low. And the 10-20% figure would be even lower were it not for the outsized U.S. equity holdings at the Swiss National Bank and Norway's sovereign wealth fund. On the bond side, foreigners' footprint in the U.S. Treasury market is shrinking. Data shows that they owned 31% of the $28.55 trillion outstanding Treasury debt at the end of last year. That share has been declining steadily since the Global Financial Crisis. In 2008, the figure was approaching 60%. Overseas investors' share of the T-bill market has shrunk even more. In December, it was under 20%, near its lowest level on record and sharply down from 50% a decade before. Nikolaos Panigirtzoglou and his team at JP Morgan aren't arguing investors will or should ramp up their purchases of U.S. assets. And in cases where allocations are high - such as the Taiwanese exposure to U.S. bonds or Canadians' holdings of U.S. stocks - diversification would hardly be a surprise. But there is "little indication" of broad-based selling of U.S. assets by foreign investors so far this year, they note. And if that selling does materialize, it may be far lighter than many expect. What could move markets tomorrow? Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, opens new tab, is committed to integrity, independence, and freedom from bias.
The Independent
37 minutes ago
- The Independent
Zelensky launched a string of daring raids against Russia. He's proving to Trump that Ukraine has the cards after all
First came dozens of armed drones launched from trucks traveling deep inside Russia, swarming over military airfields across the country and raining down nuclear-capable long-range bombers. Then, two days later, a massive underwater bomb targeted a key bridge linking occupied Crimea to the Russian mainland. The two daring raids by Ukrainian special forces have stunned the Kremlin, bolstered Ukrainian President Volodymyr Zelensky, and sent shockwaves through defense departments around the world. But there has been an uncharacteristic silence from the White House, and its usually verbose inhabitants. Donald Trump, who during an infamous Oval Office showdown in February told Zelensky that he didn't 'have the cards' to keep up the fight against Russia, and JD Vance, who in the same meeting asked the Ukrainian president if he had 'said thank you, once' for Washington's support, have not said a word about one of the most significant setbacks to Russia's military in decades. John Bolton, Trump's former national security advisor, told The Independent he was 'surprised that there has been no public Trump comment, given his propensity to comment on almost anything.' When The Independent asked the White House if Zelensky might have had some cards up his sleeve that the president hadn't known about, press secretary Karoline Leavitt said that Trump 'remains positive at the progress" the two sides have made in U.S.-brokered peace talks that just ended in Istanbul, Turkey. 'But he also is a realist, and he realizes these are two countries that are at war and have been for a long time because of his predecessor's weakness and incompetence,' she added. Despite the U.S. role in brokering those talks, Ukraine did not inform the White House of the attacks in advance. The strikes took out many of the Russian bombers that have been firing barrages of missiles on Ukrainian cities over the past few weeks, but they also destroyed a number of its nuclear-capable strike force that might have threatened the United States. That led many to ask on social media, with just a hint of irony, if JD Vance had said thank you to the Ukrainian president. In any case, there was plenty for Vance and Trump to comment on. So why the silence? The operation, which has been dubbed 'Russia's Pearl Harbor,' may have brought home some uncomfortable truths for the president. Trump has repeatedly insisted that Ukraine is on an inevitable path to destruction, or at risk of starting World War III, if it does not agree to a U.S.-brokered surrender that would see Ukraine give up most of the land that Russia currently occupies. Ukraine's victories over the past few days have decisively undermined that notion, dealing a strategic and symbolic blow to Russia's military strength and striking deep into the country's interior. Trump has also spent an enormous amount of political capital trying to bring the war to an end, specifically by attempting to enforce terms on Ukraine that it couldn't possibly accept. Those peace talks have been accompanied by a heavy Russian bombing campaign against Ukrainian cities. Ukraine's willingness to fight on stands in the way of that aim, which has angered Trump and Vance. Michael Weiss, a Ukraine expert and editor of Insider, an investigative media outlet focused on Russia, said there really wasn't much Trump could say after the last few days. 'Yesterday, a Ukrainian intel officer messaged me asking the same question. Why is Trump so quiet? I told him, well — what's he going to say? The Ukrainians are starting World War III and making sure Russia won't be able to fight it half as well?' he told The Independent. 'More seriously, I suspect he knows his peace gambit is DOA. Now, even Mike Johnson is pro-sanctions. Pressure is building to penalise Moscow. If he walks away from it all, Ukraine has just shown it won't be helpless or incapacitated,' he added. The attack coming as a surprise to the White House is significant. It's clear Zelensky does not trust the U.S. with sensitive information on account of the abrupt pro-Russia spin Trump has put on American policy towards Kyiv since returning to power in January. Some members of the Trump administration are vehemently anti-Ukraine in part because they see Russia as a sympathetic nationalist-run power exerting itself in the face of NATO expansion and American-led hegemony. Many MAGA influencers were quick to attack Ukraine for the raids, fearing a Deep State plot to drag the U.S. deeper into the war. This anti-Ukraine view reaches as high as the office of the Vice President, who intervened to blow up an Oval Office meeting between Trump and Zelensky in February by casting the Ukrainian leader as ungrateful and disrespectful to his American patrons. While Democrats and some anti-Trump Republicans have long claimed there's a similar patron-client relationship between Trump and Putin dating back to Russia's efforts to interfere in the 2016 U.S. election on Trump's behalf, people close to Trump have suggested the matter is far less complex. The president, The Independent understands, sees Russia as a strong country and Putin as a strong leader — a 'winner,' in his own parlance. But the audacity and ingenuity of this weekend's Ukrainian attacks may have — for now — positively influenced his opinion of Zelensky. Put simply, it's because Ukraine's success makes Moscow look less like a winner and more like the thing Trump hates above all else: a loser. Indeed, Zelensky indicated that the strikes were intended as such. '[W]hen we do show our strength, we do it justly, striking military targets. We show it not only to the Russian aggressors, but also to those of our allies who were once strong supporters but have started to waver, Zelensky wrote on X on Monday. Weiss believes that the last few days might have demonstrated to Trump that Ukraine is not done fighting yet. 'So long as the U.S. sells arms directly or allows third-party transfers from the Europeans, Kyiv will be in okay shape,' he said. 'Air defense is critical, and this is why knocking out 20 per cent of Russia's cruise missile-firing aircraft was such a master stroke. Why hit arrows when you can kill the archer?'
Telegraph
an hour ago
- Telegraph
Scaring Putin is the only route to a just peace
Nobody in their right mind thought Putin would come to the latest round of peace talks in Istanbul with any seriousness. And so it has proven. His demands are straight out of Soviet foreign minister Andrei Gromyko's negotiating playbook: demand the maximum, present ultimatums and do not give one inch. Putin's terms for a final settlement are no different from his diktats from the start, including international recognition of Moscow's occupation of the four regions he considers Russian territory, and a guarantee Ukraine never joins any international alliances. Even Putin's pathways to a temporary ceasefire require withdrawal of Ukrainian forces from all of the four regions, demobilisation of the armed forces, cessation of international military aid and electing a new government. In other words: total capitulation, with Ukraine surrendering its sovereignty, partitioned, isolated, disarmed and a Russian puppet government in Kyiv. That doesn't mean negotiations shouldn't continue in the hope of achieving less punitive terms. The Ukrainian government has already signalled it would be ready to accept the temporary occupation of territory Russia has already captured. But it is hard to see how Putin will climb down from his maximalist position without significant changes on the battlefield or to the economic situation. President Trump tried a softball approach with Putin, extending the prospect of major economic benefits through a return to normalisation in US-Russia relations. Putin hasn't bought that even though he has ham-fistedly attempted to mollify Trump and encourage him to abandon Ukraine with his disingenuous ploy of engaging in negotiations. Trump obviously sees right through that. He said he was 'p----d off' by Putin's proposal that Ukraine should be placed under external administration with elections overseen by the UN. The US now needs to try a different approach. Trump can say he did everything he could to end the bloodshed in the first months of his presidency but Putin's intransigence now demands different tactics. What would those tactics be? Continue to hold out an olive branch while doubling down on US military backing to Ukraine and pressuring European allies to do the same thing. It was Biden's faltering leadership that allowed most West European countries as well as the US to do the least they could get away with. That needs to change and we've already seen how Trumpian hectoring can compel Europeans to boost their own defence spending, both in his first term and even more in his second. Renewing US commitment to Nato would also help encourage European leaders. It would send a powerful message to Putin too, whose overriding strategic objective is dividing the West. We need to move on from providing Ukraine with just enough to defend themselves but never enough to prevail. The effort required to drive Russia back out of Ukraine is probably too much to expect, but the point would be to enable Kyiv to do even more damage to Russian forces to compel Putin to reconsider his current calculation that he can grind Ukraine down and outlast the West's support. Among the most harmful constraints Biden imposed on Ukraine was forbidding use of US-supplied weapons to attack Russian sovereign territory. That was the consequence of his fear of Russian escalation, both against Ukraine and Nato countries. It allowed Putin to continue to shield the Russian population from the conflict, keeping it limited to a 'special military operation'. Kyiv didn't play ball though, firing home-made drones into Russia and even mounting the first invasion of its territory since the Second World War. The latest breathtaking drone attack on Russia, which destroyed a large chunk of its strategic air force on the ground shows what can be done. Some say the US and European countries should distance themselves from that, dreading Moscow's retaliation. But irrespective of the diplomatic position they choose to take, they should do the opposite, by giving Ukraine what it needs to carry out further strikes to undermine Russian military capability, drive the war home to the population and humiliate Putin. Trump should start to do real economic damage to Russia. Much can be achieved by more effective military action to increase weapons and equipment loss rates, potentially forcing Putin to transition the economy to a full war footing. The half-hearted sanctions against Russia have not been good enough and European countries have paid more to Russia for hydrocarbons than they have given in aid to Ukraine. We need to turn the screws by tougher measures against the Russian energy sector, finally detaching Moscow from the international banking system and disrupting the ghost tanker fleet that has allowed oil revenues to surge. A bitter blow would also be landed by seizing the entirety of Russia's $330 billion of frozen assets in Western countries to pay for the war, or at least plan to do so subject to negotiations.
