Five fundamentals for the week: Fed favorite PCE stands out as turbulent month ends


  • Core PCE, the Federal Reserve's preferred inflation gauge is the main event of the week.
  • An update to US GDP in Q4 and January's Durable Goods Orders provides hard data.
  • The forward-looking ISM Manufacturing PMI has the last word of the week.

The calendar shows February 29 only once every four years – and this one also features the Fed's favorite inflation measure, the Core Personal Consumption Expenditures (PCE) Price Index. That is the week's highlight, but there are several other market-moving events.  

1) US Durable Goods Orders

Tuesday, 13:30 GMT: How has investment kicked off in 2024? This report for January will shed some light. Various factors skew the headline figure, but the non-defense ex-aircraft one is "core of the core" and feeds into GDP calculations. Better data would boost the US Dollar and hurt Gold, but not necessarily hurt stocks. While rate hikes are adverse for shares, investment generally implies ongoing sales later on.  

2) US GDP (second estimate)

Wednesday, 13:30 GMT: The first release of growth data for the fourth quarter of 2023 showed a strong increase of 3.3% annualized. Any downgrade would provide some hope that the economy is not as hot as previously estimated, while an upgrade would increase fears of higher interest rates. Any reaction to the data will likely be short-lived, as it refers to the quarter that ended two months ago. The publication could serve as an opportunity to go contrarian. 

3) German CPI

Thursday, 13:00 GMT: The early release for February will provide an insight of inflation developments in Europe's largest economy. A re-acceleration is on the cards, and may boost the Euro. However, inflation has materially cooled in the old continent, and downside surprises cannot be ruled out. The release is set to have an impact beyond the Euro, as markets will be nervous toward the release of Core PCE in the US, and could shape up positions. 

4) Core PCE

Thursday, 13:30 GMT: This is what the Federal Reserve talks about when it talks about inflation. The Personal Consumption Expenditure (PCE) is considered a more accurate inflation gauge than the Consumer Price Index (CPI). Markets usually focus on CPI, as it is released earlier in the month, and also due to the strong correlation between CPI and PCE. 

However, this time is different. After the hot CPI report, it is unclear if signs of re-accelerating inflation would also be reflected in the PCE report. Investors have come closer to the Fed's projection of cutting rates only three times in 2024, but not fully so. Core PCE, which excludes volatile energy and food items, is expected to have risen by 0.4% in February against the 0.2% increase seen in January.

Any 0.1% deviation would make a significant difference for markets. Contrary to growth, orders and sales data, inflation figures are binary for all assets. Hotter data is adverse for stocks and Gold while boosting the US Dollar. On weaker data, the US Dollar would be the only loser while all others rise.

5) US ISM Manufacturing PMI

Friday, 15:00 GMT: The first Friday of the month does not feature Nonfarm Payrolls for a change – but does provide a first insight ahead of the jobs report. The forward-looking ISM survey for the industrial sector is set to show a minor contraction on the headline.

Markets will look at the employment component for a hint toward the NFP, and the Prices Paid component for insights on inflation. If the surprise in the Prices Paid component goes in the same direction as the Core PCE on the previous day, the impact would be greater than a figure in the other direction. 

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