The holiday-shortened US trading week offers a hodgepodge of relevant macro releases, although nothing with the potential to be a game-changer, as it were.
The marquee release is obviously Thursday’s personal income and spending report, which’ll be accompanied by an update on the Fed’s preferred inflation metric.
Core PCE prices probably rose 0.3% in April, economists reckon. That’d be on par with March’s advance and wouldn’t count as alarming for the purposes of US monetary policy, although the expected YoY rate, at 3.3%, would be the highest since October of 2023.
Note that headline PCE prices are seen rising 3.8% from a year ago — so, nearly 2ppt above the Fed’s target.
The data comes as Kevin Warsh takes the reins at the Fed determined to implement what he calls, somewhat unfortunately in the context of recent geopolitical developments, “regime change.”
One of Warsh’s big ideas is incorporating so-called “trimmed mean” versions of PCE prices and perhaps CPI inflation into the Fed’s decision calculus. That’s a debatable proposition and it may not work if the plan’s to goal-seek the rate cuts Donald Trump wants. (Warsh would say he has no such plans.)
On Friday, as Warsh was sworn in, traders fully priced at least one Fed hike for this year after Chris Waller, who’s seen as a Trump-friendly board member, said he supports removing the easing bias from the FOMC statement.
The figure below, from BMO’s US rates team, shows you the number of G20 central banks cutting rates versus those raising them by month. So far in May, hikes outnumber cuts.
Assuming that holds through month-end, it’d be the first time there were more hikes than cuts in a given month since October of 2023.
“Taking a quick glance at the futures market, investors currently have 26bps of rate hikes priced in for the Fed through the end of 2026, 65bps for the ECB, 48bps for the BoE and 44bps for the BoC,” the bank’s Ian Lyngen remarked. “Without a doubt, the war in Iran has prompted a decidedly hawkish shift in the outlook for central banks across the globe.”
Indeed. And although Trump’s “MOU” with Iran, assuming it actually materializes, has the potential to get product (“molecules”) moving out of the Gulf, it’ll be months before the situation truly normalizes, and that’s to say nothing of the time and cost associated with repairing damaged infrastructure in Qatar and the UAE.
On Sunday, amid blowback from some GOP war hawks (who want to see the job “finished” in Iran, whatever that means), Trump said he wouldn’t “rush into a deal,” but didn’t seem inclined to let shrill rhetoric from a minority of Republican lawmakers derail the talks.
“The negotiations are proceeding in an orderly and constructive manner [and] our relationship with Iran is becoming much more professional and productive,” Trump insisted, before quickly adding that “they must understand, however, that they cannot develop or procure a nuclear weapon or bomb.”
Also on the US macro docket this week: Conference Board confidence (which’ll be eyed in the context of another worst-ever read on University of Michigan sentiment), the second estimate of Q1 GDP, new home sales and updates on the Case-Shiller home price indexes.
