Core PCE Inflation is Expected to Fall to 2%, The Fed’s Target Level

Equities rebound on inflation optimism. Following yesterday’s slump, major equity indices climbed on expectations that tomorrow’s data will show annualized core PCE inflation fell to the Fed’s 2% target level. The S&P 500 ended ~1.0% higher and is on track to snag an 8th straight week of gains. The NASDAQ also rose ~1.2%. On the other hand, UST yields ended higher after an early-morning decline prompted by soft quarterly GDP and PCE data. The 10-year yield ended the day up ~5bps at ~3.89%, while the 2-year climbed ~3bps to ~4.35%.  

PCE data is expected to show 2% annualized inflation. Tomorrow’s November PCE inflation data, the Fed’s preferred measure of inflation, is expected to confirm that 6-month core inflation has returned to the Fed’s 2% target-level on an annualized basis. Several inputs into PCE from last week’s inflation data, such as goods, financial services and healthcare inflation all declined, helping to drive the optimism. Another positive sign was yesterday’s data that showed core PCE inflation climbed by 2.0% in Q3.

Oil prices decline on elevated US output and OPEC turbulence. A surge in US crude output drove WTI crude below $74 per barrel following 3-straight days of gains due to Red Sea shipping concerns. US production hit a record of 13.3 million barrels per day last week, which signaled to traders that supply will remain elevated. Also contributing to the gain was Angola’s rejection of OPEC-imposed production limits, prompting the nation’s departure from the oil cartel.