CPI
Gold Setup H1 Time Frame | CPI Data NewsGold Setup H1 Time Frame | CPI Data News
Hey Traders ❗️
Welcome back hope you're doing well
This is our 5 analysis on Gold Setup
These idea not based on sell or buy
Its based on #Levels and prediction
On this Setup we catched more then 700 #pips
As you guys seem #Gold currnet point at 2033.65
We draw the two circles at 2040 and draw the line at 2047.00
#CPI fundamental high news impact might be tried to break these resistance at 2040-2047 🔵
Overall we are on #Bearish
Although gold overall view is at 2020-2019 then 2005 ❗️
So enjoy the Gold H1 setup with us 🙌
Cheers....
A clear direction of EURUSD in January. 1. The price was trapped inside an Oder block shaded yellow but also notice how it was respecting the IFVG which then acts as support.
2. The price is not likely gonna break out the OB and IFVG areas.
3. My bias will depend on lower timeframes but I'm only for buys at this moment.
4. Today is CPI and the dollar is more likely to weaken based on my analysis
Thoughts?
CPI Outlook - EURUSD Hello traders, as analysis for DXY still holds true. I would like to see higher prices on euro going into CPI. Be careful with large wicks. Ideally, I would like to see price trade back into our refined entry to take it higher. Still bearish below 1.10530. We could see a reaction at the breaker once more. I am overall bearish but I'm hoping CPI can give us that buy to sell setup we are looking for. Good luck traders and trade safely!
- CipherFX Team
CPI Outlook - NZDUSDGoing into CPI tomorrow I am favoring buys to sells on NU. DXY is respecting resistance and we can see a push higher with xxx/USD pairs. Let's see how we react during London. Ultimately trading into 4hr FVG and taking out buyside would be ideal. This pair is a little slower in movement but price action is clean. Good luck tomorrow traders and trade safely!
- CipherFX Team
GOLD| Time to evaluate a short entry!Analyzing XAU/USD, we can outline a detailed picture of the current situation and future prospects:
Current Situation:
Gold is struggling to make a decisive move in any specific direction mid-week.
After rising above $2,030, gold lost momentum and retreated towards $2,020.
The markets are awaiting the outcome of the 10-year US Treasury note auction.
Macro Factors and Upcoming Events:
A sparse macroeconomic calendar and upcoming top-tier events are keeping investors in cautious mode.
Wall Street opened positively, attempting to reverse some of its recent losses, but trading remains uneventful.
Influence of US Inflation Data:
The US Consumer Price Index (CPI) for December, set to be released on Thursday, could significantly impact gold prices.
An annual CPI increase of 3.2% is expected, slightly higher than the previous 3.1%, but the core CPI increase is expected to decline.
Market Expectations Regarding the Fed:
Market participants are betting that the Federal Reserve (Fed) might start cutting rates as early as March.
This expectation is due to decreasing inflationary pressures, despite recent data showing a tight labor market.
Recent Price Dynamics:
Gold price (XAU/USD) saw a pause in its recovery on Wednesday, with investors focusing on US inflation data.
The gold price recovery is expected to be short-lived due to investor confidence that the Fed will begin rate cuts starting in March.
Technical Analysis:
Gold price is aiming for stability above $2,030.
It found intermediate support after correcting more than 3% from the high of December 28, 2023, around $2,090.
Short-term demand for gold is no longer bullish, with the 20-day Exponential Moving Average (EMA) around $2,038 acting as a strong barrier.
The broader trend remains bullish, with the 50- and 200-day EMAs sloping upwards.
Further downside may occur if gold falls below the three-week low around $2,016.
External Factors and Future Indications:
The 10-year US Treasury yields have dropped to near 4.04% in anticipation of inflation data.
The options market is showing signs of hedging against a negative outcome.
Remarks by the President of the New York Federal Reserve, John Williams, could further influence gold prices.
Conclusion:
Currently, gold prices are influenced by a combination of expectations about the Fed's interest rates, US inflation data, and market sentiment. The future direction of the price will likely be determined by upcoming inflation data and Fed policies. My personal expectation is the 62% Fibonacci level at 1966.
Core and Headline CPI (Release Tomorrow Thurs 11th Jan 2024)Core and Headline CPI
NEW CPI Figures released tomorrow Thursday 11th Jan 2024 @ 7:30am Central (for the December 2023 month)
U.S. Headline CPI
Prev: 3.1%
Exp: 3.2%
Rep: TBC Tomorrow
U.S. Core CPI
Prev: 4.0%
Exp: 3.8%
Rep: TBC Tomorrow
Will the US Core CPI finally fall below 4% for the first time since May 2021?
Core vs Headline (the difference)
You can clearly see how Core CPI is less volatile than Headline CPI on the chart. Core CPI removes the volatile food and energy expenditures to provide the underlying inflation trend. Food and Energy is included in the Headline inflation which as you can see from the chart is much more volatile and changes direction quicker than core inflation. Its almost like an oscillator around the core inflation line.
The Feds 2% Target
It is clear that we are not at the Federal Reserve’s target inflation rate of 2% on both fronts (purple line). It is critical to understand that we are still not at or below the target 2% level regardless of the FOMC’s determination of a likely hold on interest rates and reductions to interest rates in 2024. Lets see can the target be met first.
You can see that since 2002 Core CPI has fluctuated one standard deviation above and below the 2% inflation level between 1% and 3%. It is clear that we are not back into this standardised zone between 1 – 3%.
I’ll update you tomorrow with the released figures
PUKA
short idea on XAUUSD H4 and H1 timeframethe price quite reacted to the strong resistance zone after touching all time high 2147 usd per troy ounce. now we are seeing the price corrective move is on going, while the bearish correction now pushing gold, it creates a bullish flag. me personally expecting a bullish impulse if cpi later this week is against us dollar. we need to put attention at 2007-2010 zone and 1985-1990 zone later to long this trade with a tight sl aiming for another all time high price for gold
Could USD/CAD Retain It's Bullish Move?Firstly, fundamental economic indicators suggest that the US economy has been exhibiting signs of strength, which tends to favor the USD. Positive economic data releases, coupled with the ongoing efforts to boost economic recovery, contribute to a bullish sentiment surrounding the US dollar. As the USD is the base currency in the USD/CAD pair, any positive developments on the US economic front tend to drive the pair higher.
Investors and traders often pay close attention to inflation data, such as the CPI, as it provides insights into the purchasing power of a currency. In anticipation of Thursday's release, market participants may be adjusting their positions, taking into account the potential impact of the CPI figures on the USD/CAD pair. A higher-than-expected CPI could further fuel the bullish momentum, as it may signal a potential tightening of monetary policy, which tends to support the currency.
Additionally, considering the historical seasonal trends, the USD/CAD pair has shown a tendency to be bullish during the months of January and February. Seasonal factors, such as weather-related impacts on economic activities and market participants returning from holiday breaks, can influence trading patterns. Traders often take these seasonal trends into account when making investment decisions.
It's essential to note that while historical patterns and fundamental analysis provide valuable insights, the financial markets are dynamic and subject to sudden changes. Therefore, traders should exercise caution, consider risk management strategies, and stay informed about any unforeseen events that could influence the market dynamics. Monitoring economic indicators, geopolitical developments, and market sentiment will be crucial in navigating the potential opportunities and risks associated with the USD/CAD pair in the coming days.
USDX: Thoughts and AnalysisToday's focus: USDX
Pattern – Minor Support.
Support – 102.06
Resistance – 102.52
Hi, and thanks for checking out today's update. Today, we are looking at USDX on the daily chart.
Today's video asks if USDX will continue to hold short-term support at 106.06 and make a new move at testing resistance, or is this just descending triangle price action, which in time will resume the overall downtrend with a new breakout lower.
Traders will also be watching this week's CPI data, which could have some influence on Fed members depending on what we see come in. In the meantime, we will contnue to watch buyers from 102.06 support.
US CPI data will be released this Friday at 12:30 am AEDT.
Good trading.
Fed Policy Trajectory and Interest Rate OutlookCBOT: Micro 2-Year Yield ( CBOT_MINI:2YY1! ), Micro 10-Year Yield ( CBOT_MINI:10Y1! ) and Micro 30-Year Yield ( CBOT_MINI:30Y1! )
The latest US jobs report showed that employers added 216,000 jobs for December while the unemployment rate held at 3.7%, reported by the Bureau of Labor Statistics (BLS). That compared with respective market estimates of 170,000 and 3.8%.
On Thursday, the BLS will release December’s CPI data. The prevailing market expectation is 0.3% monthly increase for headline CPI, up from 0.1% in November.
The Federal Reserve sets monetary policy to support price stability and full employment. New data shows that the US economy is very resilient, and maybe slightly overheated with the upbeat job market.
After hiking interest rates 11 times and pausing for 2 times, the Fed now has a dilemma. “To cut, or Not to cut”, this is a trillion-dollar question.
In this 3rd installment of new year outlook for major asset classes, I will discuss what opportunities may lie ahead for bonds and interest rate derivatives.
FYI: The first writing was a year-end review for metal commodities – Gold, Copper, and Aluminum. If you haven’t read it yet, you may follow the link here:
The second writing was New Year outlook for US equities – the benchmark market indexes Dow, S&P 500 and Nasdaq 100.
2023: what’s the dominating market narrative?
Last year, the Fed raised interest rates four times for a total of 100 bps. This was a slower pace comparing to the year before, where we saw seven rates hikes and 400 bps in total.
To the surprise of most analysts, businesses continue to expand and hire new workers under tightened credit. Inflation could creep up with higher wages and a strong job market.
US stock market rose for most of the year, shaking off bad news along the way. Despite interest rates are 5% higher than two yeas ago, major market indexes reached all-time-high records last December. The S&P 500 gained 23.9% for the year, and the Nasdaq Composite more than doubled that at 53.9%.
2024 Outlook for US Interest Rates
Most investors agree that the Fed will cut rates in 2024. But the expectations for the timing and scope vary significantly.
According to CME Group’s FedWatch Tool, the first rate-cut could occur at the March 20th Fed meeting, with a 69.2% probability. For June 12th, the odds of two or more rate cuts increase to 85.9%. By December 18th, investors expect the Fed Funds rate to fall between 1% to 2% lower than the current 5.25-5.50% range, with a 97.9% odds (Data as of January 7th).
(Link: www.cmegroup.com)
Treasury prices and yields move in opposite directions. Current bond prices reflect the market expectations of 5-8 rate cuts in 2024. Lower yields, higher prices.
The January 2nd CFTC Commitments of Traders report (COT) shows that “Leveraged Funds” hold the following open positions on CBOT interest rate futures:
• Fed Funds: 224,772 longs and 489,204 shorts
• 2Y Treasury: 775,882 longs and 2,266,563 shorts
• 5Y Treasury: 844,600 longs and 2,821,682 shorts
• 10Y Treasury: 285,598 longs and 775,882 shorts
• 30Y Treasury: 79,124 longs and 497,636 shorts
The overwhelmingly Net short positions indicate that the “Smart Money” considers the rate cuts being oversold. Why do they want to short Treasury futures? If the Fed keeps the interest rates higher for longer, or implements fewer rate cuts, Treasury yields would be higher than the current price indicated. Higher yields, lower prices. Shorting Treasury futures expresses the viewpoint that Treasury bond prices would fall.
In my opinion, the bond market tends to tell a better story, compared to the stock market. The institutional nature of most participants allows the bond market to be less prone to irrational hypes and price bubbles.
Trading with CBOT Micro Yield Futures
Micro Treasury Yield Futures are low-cost instruments to participate in the bond market. Micro yields are quoted by treasury yield directly. Higher yields, higher futures prices. This would ease the burden from working the complicated price and yield conversion.
Last Friday, the February contract of Micro 2Y Yield futures (2YYG4) were settled at 4.186%. Each contract has a notional value of 1,000 index points, or $4,186 at current price. To acquire 1 contract, a trader is required to deposit an initial margin of $340.
The February Micro 10Y Yield (10YG4) was settled at 4.008%. Notional value is 1,000 index points or $4,008. Initial margin is $320.
The February Micro 30Y Yield (30YG4) was settled at 4.221%. N notional value is 1,000 index points or $4,221. Initial margin is $290.
My reasoning:
We just had a hotter than expected jobs report for December. If CPI data shows inflation rebound this week, the whole Fed cut narrative could be derailed. The January 30th Fed meeting could have a surprised rate decision, or a more hawkish Fed statement.
To replicate the short bond futures strategy used by Leveraged Funds, investors could long the micro yield futures to express the same view of higher yields. Initial margins for 10Y Micro Yield are $320, compared to $2,125 for 10Y treasury notes futures (ZN).
Hypothetically, if the yield goes up by 25 bps, a long Micro Yield futures position would gain $250 (= 0.25 x 1000). This would be the same for 2Y, 5Y, 10Y and 30Y micro yield futures, as they all have a 1,000-point multiplier.
On the other hand, if investors continue to ignore the Fed, as they have often been in the past two years, short futures will lose money.
Happy Trading.
Disclaimers
*Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services.
CME Real-time Market Data help identify trading set-ups and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
Gold Puzzles: ISM Downturn, NFP Beats, and Thurday's CPI.In today's trading session, our attention is directed towards XAUUSD, where we're eyeing a buying opportunity around the 2008 zone. Gold, emblematic of a broader uptrend, currently finds itself in a correction phase, steadily approaching the key trend at the 2008 support and resistance area. This technical perspective serves as our initial guide.
Diving into the specifics, the recent ISM figures revealed a notable downturn, falling from the forecasted 52.5 to the actual 50.6, signaling a slower expansion in the manufacturing sector than anticipated. This unexpected contraction has cast a shadow on the US economic outlook. Coupled with the recently released NFP data, where the actual job gains surpassed both the forecast (184k) and the previous (150k), a nuanced economic landscape is emerging.
This intricate scenario, where manufacturing lags while employment gains outpace expectations, introduces a level of uncertainty. The mixed signals within the labor market further underline the potential for a dovish Fed. Adding to this equation, the CPI data becomes a pivotal factor. In this intricate dance of numbers, the potential for a softer CPI reading aligns with the narrative of a cautious Federal Reserve.
Now, weaving these numbers into the fabric of our analysis, the combination of weak ISM figures, strong NFP job gains, and the prospect of a softer CPI contributes to the argument for USD shorts. As we traverse the complex economic landscape, gold emerges as a candidate for potential upside movements amid the increasing likelihood of USD weakness.
Stay vigilant, Joe, and trade safe.
AUDUSD Chronicles: Linking CPI, FOMC, and DXY TrendsGreetings Traders,
In today's trading session, our attention is focused on AUDUSD, where we are actively monitoring for a potential buying opportunity around the 0.66200 zone. As AUDUSD navigates an uptrend, the ongoing correction phase positions it in proximity to the trend at the 0.66200 support and resistance area. This in-depth analysis will explore the fundamental landscape, drawing insights from the Consumer Price Index (CPI) and Federal Open Market Committee (FOMC) data, and connecting this idea to the previously discussed DXY analysis.
Starting with the FOMC decisions, the most recent meeting held on December 13, 2023, maintained the interest rate at 2.00%. The dovish stance articulated by the Federal Reserve underscores their commitment to accommodating economic growth while navigating inflationary pressures. This has broader implications for AUDUSD, as a weaker USD often contributes to the strength of commodity currencies like the Australian Dollar.
Analyzing the CPI data for AUDUSD, the inflation rate in Australia has shown resilience. The most recent figures for Q4 2023 indicate a 2.0% year-over-year increase. This steady inflation, coupled with the dovish stance of the Federal Reserve, can contribute to a positive environment for AUDUSD, potentially supporting its upward trajectory.
Linking this idea to the previously discussed DXY analysis is crucial. DXY, representing the strength of the US Dollar against a basket of major currencies, exhibits an inverse relationship with AUDUSD. As DXY weakens, AUDUSD tends to strengthen, creating a favorable environment for a buying opportunity. Traders should monitor DXY movements for additional insights into the potential direction of AUDUSD.
Examining interest rate differentials between the Reserve Bank of Australia (RBA) and the Federal Reserve adds another layer to this analysis. As of the latest available data, the RBA's cash rate is at 0.10%, significantly lower than the Federal Reserve's 2.00%. This interest rate gap can further contribute to the attractiveness of AUDUSD for investors seeking higher yields.
Considering the overall economic backdrop, Australia's strong ties to commodity exports, particularly in metals and minerals, can enhance the appeal of the Australian Dollar. As global economic conditions improve, the demand for commodities may rise, positively impacting AUDUSD.
In conclusion, as we explore a buying opportunity in AUDUSD around the 0.66200 zone, the interplay of FOMC decisions, CPI data, and the inverse relationship with DXY provides a comprehensive understanding. Traders should remain vigilant, considering the broader market context, and keep an eye on DXY movements for nuanced insights into the potential direction of AUDUSD.
Best of luck in your trades,
Joe
Interest Rates and Inflation: Shaping GBPUSD's TrajectoryGreetings Traders,
As we delve into the intricacies of GBPUSD for potential trading opportunities, the convergence of fundamental factors takes center stage. This analysis encapsulates the interplay between interest rates, Consumer Price Index (CPI) data, and central bank decisions for both the Bank of England (BoE) and the Federal Reserve.
Examining the BoE's CPI data provides insights into the inflationary pressures faced by the UK. The most recent CPI figures on December 20, 2023, indicate a year-over-year inflation rate of 3.9%, slightly below the forecasted 4.3% and notably lower than the previous 4.6%. The gradual decrease in inflation suggests a potential easing of price pressures. However, it's crucial to note that even with this decline, inflation remains elevated.
In tandem with the CPI, the BoE's interest rate decisions are instrumental in understanding the monetary policy landscape. As of December 14, 2023, the BoE has maintained a benchmark interest rate of 5.25%. This consistent stance signals the central bank's commitment to addressing inflation while providing stability to the economy. The interest rate differential between the BoE and the Federal Reserve plays a pivotal role in shaping GBPUSD dynamics.
Contrasting this with the Federal Reserve's interest rate decisions, the FOMC has maintained a steady interest rate of 2.00% as of December 13, 2023. The relatively lower interest rate in the United States compared to the UK creates an environment where traders need to carefully navigate the potential impact on GBPUSD.
Analyzing the broader context, the comparative interest rates and inflation trends suggest a nuanced landscape for GBPUSD. While the BoE grapples with elevated inflation, its commitment to a higher interest rate provides a counterbalance. On the other hand, the Federal Reserve's dovish stance, despite rising inflation, signals a cautious approach. This divergence in monetary policy contributes to the potential for GBPUSD upsides.
In conclusion, traders eyeing GBPUSD for a buying opportunity around the 1.25900 zone should consider the complex interplay of interest rates, inflation, and central bank decisions. The nuanced analysis presented here aims to equip traders with a comprehensive understanding of the macroeconomic factors shaping GBPUSD's prospects, pointing towards potential upsides in the current market environment.
Wishing you successful trades,
Joe.
Fed's Hope in 2024 - Their Projection & PlanDuring the December FOMC conference, the fed said the appropriate level for interest rate or the fed funds rate will be 4.6% at the end of 2024 from current 5.5%, 3.6% at the end of 2025, and 2.9% at the end of 2026.
Many reporters take that as Fed’s hint to cut rate in 2024, but the Fed added saying these projections are not the committee decision or plan.
So what is the difference between a projection and a plan? And how will the market performance in 2024?
Dow Jones Futures & Options
E-mini Dow Jones
Ticker: YM
1.00 index point = $5.00
Micro E-mini Dow Jones
Ticker: MYM
1.0 index points = $0.50
Disclaimer:
• What presented here is not a recommendation, please consult your licensed broker.
• Our mission is to create lateral thinking skills for every investor and trader, knowing when to take a calculated risk with market uncertainty and a bolder risk when opportunity arises.
CME Real-time Market Data help identify trading set-ups in real-time and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
EUR/USD steady as Spanish CPI lower than expectedThe euro is calm in Friday trade. In the European session, EUR/USD is trading at 1.1053, down 0.08%.
Spain released the December inflation report today, with CPI dipping to 3.1% y/y, down from 3.2% in November. This was better than expected as the consensus estimate stood at 3.4%. The reading was the lowest rate since August, with the drop attributed to lower prices for fuel, food and electricity. Monthly, CPI rose from -0.3% to 0.0%, but this was lower than the consensus estimate of 0.3%. Core CPI dropped to 3.8% y/y, down from 4.5% in November.
Germany, France and the eurozone will follow with their inflation releases next week. If the data shows that inflation eased in December, it will put pressure on the European Central Bank to cut rates in the first half of 2024. The ECB has not followed the Federal Reserve and continues to push back against rate-cut expectations. The markets have priced in 150 basis points from the ECB next year, with an initial cut expected in April.
ECB President Lagarde has poured cold water over rate-cut fever, saying that the ECB should "absolutely not lower its guard". Lagarde may have to shift her hawkish stance or risk tipping the weak eurozone economy into a recession. If next week's inflation report indicates that inflation is falling, we can expect the voices in the ECB calling for looser policy to get louder.
The US releases Chicago PMI, an important business barometer, later today. The PMI shocked in November with a reading of 55.8, which marked the first expansion after fourteen straight months of contraction. The upward spike may have been a one-time blip due to the end of the United Auto Workers strike as activity rose in the auto manufacturing industry. The consensus estimate for December stands at 51.0, which would point to weak expansion.
EUR/USD continues to put pressure on resistance at 1.1086. Above, there is resistance at 1.1171
1.1116 and 1.1031 are providing support
HEADLINE/CORE PCE - Inflation dips down into to historical normsU.S. Headline PCE - Lower than Expected ✅
Actual: 2.64%
Exp: 2.8%
Prev: 3.0%
US Core PCE - Lower than Expected ✅
Actual: 3.16%
Exp: 3.4%
Prev: 3.5%
As highlighted on my recent Macro Monday post Core PCE is the Feds favorite metric for measuring inflation (as it excludes volatile price swings from the likes of energy and food and gives a good indication of the underlying inflation trend). PCE is also considered more comprehensive and a more consumer led report than CPI which focuses more on a lessor altered fixed basket of goods (compared month to month).
CORE PCE
Core PCE has come in this month lower than expected at 3.16% (expected 3.4%). This is great news for the fight against inflation.
HEADLINE PCE
Separately, Headline PCE has just dipped under the 3% level down to 2.64% which is getting very close to the Federal Reserves long term target of 2%.
Historical Core PCE Norms
On the chart you can see that since 1990 the typical Core PCE range is between 1 - 3% (red dotted lines on chart). We are slowly getting back down into this more historically moderate level. A sub 3% Core PCE next month would be ideal and demonstrate further easing of inflationary pressures.
For the full breakdown of the Core and Headline PCE and to know the differences between PCE and CPI, please review this weeks Macro Monday released earlier this week.
PUKA
Macro Monday 25~The Feds Inflation Barometer – Core PCE Macro Monday 25
The Feds Favorite Inflation Barometer – Core PCE
The US Core Personal Consumption Expenditures (PCE) are released this Friday 22nd December 2023. Currently Core PCE is the most important component to the Federal Reserve in making their interest rate decisions and thus it will provide a great insight into what lies ahead in terms of interest rate policy for Q1 2024.
Known as the Federal Reserve’s favorite gauge for inflation, Core PCE is a crucial economic indicator that provides insights into the general trend in consumer spending (it excludes the more volatile energy & food costs).
Jerome Powell
“I will focus on core PCE inflation, which omits the food and energy components.”
25th Aug 2023
The Bureau of Economic Analysis (BEA) compiles and publishes the Core PCE report which is considered a more comprehensive measure of general trends in consumer spending than some other indicators, such as the Consumer Price Index (CPI).
We will briefly cover the differences between CPI and PCE which will eventually lead us to why specifically the Core PCE is the preferred barometer for inflation (over headline and core CPI and over headline PCE).
Stick with me here and lets have a look at CPI vs PCE first…
CPI Vs PCE - Main differences?
Consumer Price Index: CPI is a metric that follows a fixed basket of goods. This fixed basket of items is measured month to month providing a consistent “basket of goods” cost for the common urban consumer. This allows for the basket of items to remain relatively unchanged thus providing an indication of how costs may be increasing or decreasing for the common consumer using the said basket (the basket is updated but not a frequently as the PCE basket).
Personal Consumption Expenditures: PCE includes a broader range of goods and services, and it is based on more frequent updates to the basket of goods and services that represent consumer spending, thus PCE captures more of the trend or trend changes in consumer spending. PCE includes expenditures on durable goods (e.g., cars and appliances), nondurable goods (e.g., food and clothing), and services (e.g., healthcare and education). This breakdown provides insights into which sectors of the economy are experiencing changes in consumer spending. We covered Durable Goods in a prior Macro Monday (I will link same under the published version on my TradingView). The bottom line on PCE is that it is more broader and more consumer led report thus arguably providing a more accurate indication of the wider spending habits of the consumer
Headline Vs Core (for both CPI and PCE)
In general Headline CPI and Headline PCE have an all-encompassing basket of goods and services included whilst Core CPI and Core PCE focus on a subset by excluding the volatile components of food and energy.
Analysts and policymakers often consider both Headline and Core to gain a comprehensive understanding of inflation trends, however Core PCE in particular provides the deepest and broadest insights into consumer led spending habits and provides the true underlying inflation by removing volatile commodities (Food & Energy). Lets look at CORE PCE a more closely
What is the benefit of excluding food and energy from inflation figures for Core PCE and why is this so beneficial?
1. Reduced Volatility: Energy and food prices are known to be more volatile and subject to temporary fluctuations due to factors such as weather conditions, geopolitical events, and supply chain disruptions. By excluding these components, Core PCE aims to provide a more stable measure of inflation.
2. General Inflation Trend Focus: As noted above, the short-term volatility in energy and food prices can mask the underlying aggregate trend in other goods and services, so the PCE eliminates some of this short term noise from food and energy inflation figures.
3. Captures Persistent Underlying Inflation Forces: Core PCE filters out the impact of temporary shocks to energy and food prices. This can be valuable for assessing whether inflationary pressures are becoming ingrained in the economy in the general sense.
4. Long Term Planning for the Consumer and the Fed: Understanding the underlying inflation trend is crucial to knowing the base level of the cost trend. Core PCE can provide a more reliable gauge for long-term economic planning by smoothing out short-term fluctuations.This provides investors, consumers and the Fed with a sort of long term general expenditure based moving average (the Core PCE) for the underlying inflation burden that is trending in an economy. All three participants can make the necessary adjustments to cater to this long term trajectory and thus the metric is a powerful tool for all involved.
Now that we know why the PCE is such a useful metric we can have a look at the long term PCE chart and see how things have been trending.
For the record CPI already came out for the month of November as CPI is typically released mid-month whilst PCE is released towards the end of the month.
Remember we will have an update this Friday from the BLS on the November readings for Core and Headline PCE, so we can see how we are looking then.
The Core and Headline CPI Chart
This CPI chart illustrates the following:
▫️ You can clearly see how Core CPI is less volatile than Headline CPI. As discussed above, Core CPI removes the volatile food and energy expenditures to provide a more general view of underlying inflation (based on a fixed basket of goods)
▫️ It is clear that we are not at the Federal Reserves target of 2% which is also outlined on the chart (purple line). It is critical to understand that we are still not at or below the target 2% level regardless of the FOMC’s determination of a likely hold on interest rates and reductions to interest rates in 2024. Lets see can the target be met first.
▫️ You can see that since 2002 Core CPI has fluctuated one standard deviation above and below the 2% inflation level between 1% and 3%. It is clear that we are not back into this standardized zone between 1 – 3%.
The Core and Headline PCE Chart (SUBJECT CHART AT TOP PROVIDED TODAY)
(will be updated this with newly released figures this Friday 22nd Dec)
This CPI chart illustrates many of the same findings from the CPI chart above:
▫️ Core PCE provides the deepest and broadest insights into consumer led spending habits versus a more fixed and stringent basket of goods for CPI, making Core PCE the Feds favorite inflation barometer to watch.
▫️ You can clearly see how Core PCE is less volatile than Headline PCE. As discussed above, Core PCE removes the volatile food and energy expenditures to provide a more general view of underlying inflation (based on a fixed basket of goods).
▫️ It is clear that we are not at the Federal Reserve’s target of 2% which is also outlined on the chart (purple line). The Federal Reserve have advised that Core PCE is expected to decline to 2.2% by 2025 & finally reach its 2% target in 2026. Anything that happens to interfere with this between now and then will need to be addressed by the fed.
▫️ You can see that since 1991 Core PCE has fluctuated one standard deviation above and below the 2% inflation level between 1% and 3%. It is clear that we are not back into this standardized zone between 1 – 3%.
Summary
You can visualize on the charts why the Core CPI and Core PCE is more important to Chair Powell, both Core metrics on the charts are almost like a slower moving average providing an indication of the longer term inflation trend. Right now Headline metrics are diving down past the Core metrics and the Federal Reserve cannot just take that volatile headline figure to make long term decisions. The Core PCE/CPI provides the long term trend trajectory whilst the Headline can offer early/lead signals of the direction of inflation, however core must be observed to determine the resilience of the long term trend. Furthermore, Core PCE is perceived by the FED as having more value as it has its finger on the pulse of the consumers spending habits by covering a broader range of expenditures whilst also accounting for consumer led spending trends. The CPI basket of goods in more fixed/restricted in terms of the goods it accounts for. This is why the FED values Core PCE so highly as a versatile and all encompassing gauge of inflation.
Hopefully you’ve come away today with a greater understanding of why the Core CPI and PCE data is preferred by the Fed ahead of headline inflation and also why the Core PCE comes out ahead as the chosen long term inflation gauge.
Any questions or observations, please throw them into the comments and I will be onto them as quickly as possible,
Thanks for reading,
PUKA
FTSE 100 reaches seven month high on softer CPIThe FTSE 100 surged in early trading on Wednesday as the latest inflation figures showed consumer prices had risen less than expected in the last 12 months. Headline CPI came in at 3.9% year-over-year in November, the lowest level in two years. Analysts had been expecting the figure to drop to 4.3% from 4.6%. Core inflation also dropped more than expected to 5.1% from 5.7%.
The softer data underpinned expectations for the Bank of England to start cutting rates sometime next year. Before the data and the FOMC’s surprise dovish tilt last week, markets were pricing in the first cut from the BoE sometime in the third quarter of 2024. As of Wednesday morning, the first full 25bps cut is priced in for May, but there are 13bps of easing priced in by March. By year-end, markets anticipate 134bps of easing, which would entail five 25bps cuts in 2024.
This seems to contradict the messaging that came from the BoE in their meeting last week. The central bank failed to acknowledge rate cuts, going as far as to reiterate that further rate rises could be possible if needed. Markets failed to believe this, and the Federal Reserve is mostly to blame for that. Their unexpected dovish tilt opened the door for other central banks to welcome talk about easing, but neither the BoE nor the ECB took the bait. Regardless, markets see the Fed’s change in position as the turning point in monetary policy across central banks in developed economies, which means they expect the BoE to follow suit sooner or later.
The BoE’s reluctance to show a dovish inclination at their meeting on Thursday last week weighed on UK stocks, especially those most sensitive to rates. The FTSE 100 shed over 1% as the central bank remained firm in its hawkish stance, but Wednesday’s softer CPI data has pushed the index to a seven-month high.
Core and headline CPI - Update from 12 Dec 2023 The Core and Headline CPI Chart
This CPI chart illustrates the following:
- You can clearly see how Core CPI is less volatile than Headline CPI. Core CPI removes the volatile food and energy expenditures to provide a more general view of underlying inflation (based on a fixed basket of goods)
- It is clear that we are not at the Federal Reserves target of 2% which is also outlined on the chart (purple line). It is critical to understand that we are still not at or below the target 2% level regardless of the FOMC’s determination of a likely hold on interest rates and reductions to interest rates in 2024. Lets see can the target be met first.
- You can see that since 2002 Core CPI has fluctuated one standard deviation above and below the 2% inflation level between 1% and 3%. It is clear that we are not back into this standardised zone between 1 – 3%.
Im sharing this chart now to lock it in as it will feature in tomorrows Macro Monday
See you there
PUKA
Nasdaq Momentum ahead of bearish DXYIn anticipation of tomorrow's trading session, our focus keenly centers on the NASDAQ, where we are meticulously examining the potential for a strategic buying opportunity around the 16550 zone. The current trajectory of NASDAQ reflects a sustained uptrend, emphasizing a consistent upward movement. Presently, the index is immersed in a correction phase, gradually approaching the trend at the critical 16550 support and resistance historical zone. This numerical level holds significant weight, symbolizing both a historical inflection point and a crucial juncture where market forces may pivot.
Adding a layer of depth to our analysis, we take into consideration the broader monetary policy environment in the United States. The prevailing dovish stance in the US monetary policy has exerted downward pressure on the US Dollar Index (DXY), influencing a cascade effect across various indices, including the NASDAQ, due to their correlation. Acknowledging this interconnected landscape enhances our strategic approach as we assess the potential buying opportunity, aligning technical trends with the macroeconomic backdrop. The confluence of a robust uptrend, a critical support and resistance zone, and the influence of dovish monetary policy forms the foundation of our analysis for potential trading opportunities in the NASDAQ tomorrow.
US Financial Markets facing CPI after US Down-Graded to AA+- Emerging Markets are in a paranoid state due to Major US Financial Markets nearing
scheduled date of CPI numbers releasing day.
Consensus forecasts are anticipating Inflation to steadily
go up for the rest of 2023 and entering '24
10'th of August/23 will be a very important day for The Global Financial Markets.
Casualties might follow soon due to the turbulence of this frenzy economic environment created.
Is US about to enter a recession ?
Or do you believe Powell's joke of 'Soft Landing'
How about another joke Powell ...
Note that US technically had entered recession by two negative consecutive Quarters,
however, it got 'saved' by promising growing employment numbers.
Seems like Feds are masters at postponing cascading tragedies,
great tricksters filled with riddles.
With Euro-Zone being officially in Recession for a while now,
it's just a matter of time for US fate to be sealed.
Why learn economics !?
Broader and clearer pictures to strategize your investing/positioning and smaller
time frames trading decisions, be it swings, intradays or scalps.
Seems like it is enough today for a good poker player and a gambler to trade the markets.
How many times can you get lucky in repetitive motion and consider making in to trading
for a living ?!
Not long .
Open your horizons and explore financial literacy to be more in touch with
Facade of Financial Markets.
🔥 XAUUSD : The Fall will Continue ?By checking the gold chart in the daily time frame, we can see that the price according to our expectation was accompanied by a further fall and was able to correct up to $1973! Be careful, this fall will continue only if it stabilizes below the level of 1987$! In this case, the next falling targets will be $1966, $1960 and $1939 respectively!
Please share your opinion about the possible trend of this chart with me and support us with your likes and comments.
Best Regards , Arman Shaban
