Closing out an eventful week for Q1 earnings and economic reports, we cap things off with the Fed’s favored inflation report: Personal Consumption Expenditures (PCE). And this comes only days ahead of the next Federal Open Market Committee (FOMC) meeting, whereby it is a near-certainty that another quarter-point rate hike is in the cards. Pre-market futures were already down prior to this PCE release, and have remained there: the Dow -120 points, the S&P 500 -12 and the Nasdaq -40 points at this hour.
March PCE on headline came in at an expected +0.3%, which is only 1/3 of the highs we saw back in October of +0.9%. The core print — subtracting volatile food and energy costs — was also +0.3%, as it was in the prior month, as well. Year over year, core PCE came in at cycle lows to +4.6%, but still 10 basis points (bps) ahead of expectations. Again, we’re off the peaks north of 5% we saw in 2022, but we’ve apparently hit a bed of resistance here at around 4 1/2%.
The Deflator came in month over month at +0.1% — far better than last June’s +1.0% — while year over year we settle at +4.2%. This is again a notable improvement from +7%, also from June 2022. Core Deflator month over month is +0.3%, off the +0.6% last June, while year over year we’re +4.6% — sequentially down from the upwardly revised +4.7% from February. This high was from February a year ago: +5.4%.
Through the prism of what the Fed is likely to do regarding interest rate policy next week, this looks like the final nail in the coffin for a 25 bps hike on Wednesday, to a range of 5.00-5.25% — the highest range we’ve seen since September of 2007. We see the same thing Fed Chair Powell does: inflation is indeed coming down, but too slowly. We’ve also struck another stubborn reef on these year-over-year PCE figures, and depending on what we see in economic reports over the next month or so, perhaps we’ll see another 25 bps hike in June of this year, as well.
This is not happy news for market participants this morning, but it’s probably still worth counting our blessings (so far). The regional bank failures of last month seem fairly well contained — clearly they have done no damage to the big Wall Street banks like JPMorgan JPM and Citi C, and resilience in the labor market (though we see signs of weakness there, too) are keeping inflation metrics at levels still worthy of attacking, according to the Fed. At least it’s better to know than not know.
Big Oil “supermajors” Exxon Mobil XOM and Chevron CVX both came out with Q1 earnings results this morning, with both beating on bottom-line projections, by +6.79% and +5.65%, respectively. Revenues show a bit of a gap between the two International Integrated energy firms, with Chevron posting a +6% beat on its top line while Exxon missed estimates by nearly -10%. Exxon shares are still up for the year while Chevron’s are down,
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