Nasdaq 100 Futures Extend Gains as Fed’s Favorite Inflation Gauge Cools to 4.9%

PCE REPORT KEY POINTS:

• April U.S. consumer spending advances 0.9% versus 0.7% expected
• Core PCE, the Fed’s favorite inflation measure, climbs 0.3% month-on-month and 4.9% from a year earlier, in line with expectations
• Nasdaq 100 futures extend pre-market gains as traders celebrate signs that household consumption remains healthy and that price pressures are beginning to cool

Most Read: EUR/USD Forecast – Is the Recent Bullish Momentum Sustainable?

The U.S. Bureau of Economic Analysis released its latest report on personal consumption expenditures this morning. According to the agency, April personal spending rose 0.9% month-over-month versus 0.7% expected – a sign that the American consumer remains resilient and still has gas in the tank to propel the expansion, aided in part by the robust labor market, some wage gains and enhanced savings accumulated during the pandemic.Strong consumer spending at the start of the second quarter may help allay fears of a recession, considering that household consumption is main driver of U.S. economic activity.

Elsewhere, the PCE Price Index, which measures costs that people living in the U.S. pay for a variety of different items, edged up 0.2% month-over-month and 6.3% year-over-year. Meanwhile, the core PCE indicator, the Federal Reserve’s preferred inflation gauge that excludes food and energy and is used to make monetary policy decisions, advanced 0.3% on a seasonally adjusted basis, bringing the annual reading to 4.9% from 5.2% in March, in line with consensus expectations.

PCE REPORT DETAILS

Source: DailyFX Economic Calendar

The encouraging data boosted sentiment and confirmed the belief that inflationary pressures likely peaked during the first quarter and are slowly starting to ease amid tightening financial conditions and a favorable comparison base. While the directional PCE improvement is welcome, it is unlikely to prompt the Fed to deviate from its plans to front-load interest rate hikes in 50 basis points increments at its next two meetings – after all, the bank has indicated that it will stay the course until there is clear and convincing evidence that inflation is coming down.

Immediately after the personal consumption expenditures report crossed the wires, Nasdaq 100 futures contracts extended pre-market gains as Wall Street celebrated signs that household consumption remains healthy and that price pressures are beginning to cool. If annual inflation continues to decline in the coming months, the FOMC could contemplate slowing or pausing its tightening cycle in the second half of the year, in line with what Atlanta Fed President Raphael Bostic suggested, creating a more benign environment for risk assets.

NASDAQ 100 FUTURES

Nasdaq 100 Chart Prepared Using TradingView

EDUCATION TOOLS FOR TRADERS

• Are you just getting started? Download the beginners’ guide for FX traders
• Would you like to know more about your trading personality? Take the DailyFX quiz and find out
• IG’s client positioning data provides valuable information on market sentiment. Get your free guide on how to use this powerful trading indicator here.

—Written by Diego Colman, Market Strategist for DailyFX