US PCE looks to accelerate China’s comeback By Reuters

A look at the day ahead in US and global markets from Mike Dolan

U.S. stocks hit new highs as the final full week of the quarter drew to a close, with China’s furious monetary easing accelerating the rebound there and Wall Street eyeing the release of the Fed’s favored gauge of inflation.

After a flurry of interest rate cuts, housing and stock market support this week, China’s central bank cut its one-week reverse repo rate by another 20 basis points on Friday – seeking to overcome what he probably sees as an alarming economic slowdown. this may lead to missing the targets for 2024.

Reuters reported that the Chinese cities of Shanghai and Shenzhen plan to lift remaining restrictions on home purchases to attract potential buyers and support sluggish housing markets.

Whether the expansion drive proves effective or not, the force and intent become clear. Same as the background.

China’s industrial profits returned to a sharp contraction in August, falling nearly 18 percent from a year earlier, according to new data.

But heading into a string of holidays next week, mainland Chinese stock indexes <.csi300 surged="" anew="" adding="" another="" again="" on="" friday="" to="" notch="" their="" best="" week="" since="" wp_automatic_readability="82">

With new central government borrowing in the pipeline and hopes of an ongoing recovery, Chinese 10-year government bond yields rose. But 16-month highs were pulled back amid sales reported by state-owned banks.

Back on Wall Street, the persistent strength of the U.S. economy was underscored Thursday by another surprise drop in weekly jobless claims, solid durable goods orders last month and second-quarter after-tax corporate profit that was revised up to 3.5%.

Attention now turns to inflation to see if the Federal Reserve’s projected easing path is justified in that light, with the August PCE gauge out later on Friday.

While consensus forecasts are for a 0.2% rise in “core” PCE last month, which would push the annual rate up to 2.7% from 2.6%, Fed Governor Christopher Waller , suggested last week that cutting components of that ratio was a key reason for the Fed. big rate cut of 50bp.

Federal Reserve Governor Lisa Cook approved the size of the cut on Thursday as a way to address increased “downside risks” to employment. “I wholeheartedly supported the decision.”

Treasury Secretary Janet Yellen said the economy is on track for a “soft landing” and that will allow Fed interest rates to fall to “neutral” levels — seen by Fed officials and financial markets as around 3 percent, compared to current 4.75-5.0% range.

However, given the strength of the latest numbers, futures now see just a 50% chance of another 50 basis point cut at the Fed’s next meeting in November. Another 25 basis point move is made and about 75 basis points by the end of the year.

Ten-year Treasury yields steadied on Friday after rising over the past week, with the spread on the 2-10-year yield curve slipping back to a positive 15 bps. US 30-year fixed mortgage rates fell to a two-year low of 6.08% this week.

It was firmer with the euro retreating as euro zone inflation figures put pressure on the European Central Bank to keep cutting interest rates next month and money markets there are now fully pricing in another 50 bps from ECB rates until the end of the year.

France’s headline inflation rate fell more than expected to just 1.5% in September, well below the ECB’s 2% target and weighed down by sharp falls in energy prices.

With annual crude oil prices down nearly 30% after a further decline this week, the pulse of disinflation will be building across the board.

ECB sources say accommodative council members are pushing hard for a third rate cut of the year at the October policy meeting, according to a Reuters report on Thursday.

Germany’s jobless number rose more than expected in September, the latest sign of challenges facing Europe’s biggest economy.

Elsewhere, the Bank of Mexico cut its benchmark interest rate by 25 bps to 10.50 percent on Thursday, its second cut in a row, as price pressures eased in the No. 1 economy. 2 of Latin America.

The Japanese yen also rose on Friday, recovering earlier losses after Japan’s former defense minister Shigeru Ishiba won the leadership contest of the ruling Liberal Democratic Party to become its next prime minister.

Ishiba is critical of past monetary stimulus and told Reuters the central bank was “on the right policy track” with interest rate hikes so far.

Key developments that should provide more direction for US markets later Friday:

* August US PCE Inflation, Personal Income and Consumption, August Trade Balance, August Retail and Wholesale Inventories, Final September University of Michigan Sentiment Survey

* Federal Reserve Board Governor Michelle Bowman speaks

(By Mike Dolan, Editing by XXXX; [email protected])