All eyes on the US core PCE release

The FTSE 100 has hit yet another record high in early trade, push into fresh territory for a fourth consecutive session. Another day, another UK listed company comes into the crosshairs of a foreign buyer. Yesterday’s BHP bid for Anglo American may have been rejected, but more are likely to follow as their enviable copper assets bring expectations of further interest. Meanwhile, Cybersecurity firm Darktrace have been subject to a $5.32 billion bid from private equity firm Thoma Bravo, bringing yet another question over whether the UK sufficiently values the companies under its tutelage.

The Bank of Japan did little to offer their support for a beleaguered yen that has surged into multi-year lows across the board. Warnings that the Bank will step in to support the yen have been largely bluster thus far, and the overnight decision to keep rates steady showed little signs of preparing markets for the rate hikes being predicted by many. From a Japanese economic standpoint the continued slump in the yen does provide some benefits, with exports increasingly competitive and record tourism numbers. The relationship between a lower yen and increased exports does go some way to explain why the Nikkei 225 has been such an outperformer during periods of yen depreciation, gaining 33% over the past year alone. Crucially, the overnight slump in Tokyo core inflation (1.6% from 2.4%) served to further dampen expectations for any additional actions from the BoJ, with the decline in the Yen providing increased import inflation that could help the bank maintain price growth around the 2% target.

The US economy looks set to dominate once again today, with the core PCE price index inflation gauge set for release in the wake of yesterdays concerning decline for first quarter GDP. With the Fed’s favoured inflation figure standing at 2.8% for February, the doves will look towards this as the best equipped metric to move back towards target and encourage the Fed to cut. Nonetheless, recent inflation pressures seen over the past two-months do highlight a growing fear that we will see price growth remain well above 2% for some time yet. The expectations of a September rate cut from the Federal Reserve appear to have dwindled, with the stubborn inflation pressures having taken us from expecting seven rate cuts this year, to only one.