PCE Cools The Inflation Narrative
by Adam Button
USD regained strength after Friday’s post-PCE slide. A series of inflation surprises left the market on edge ahead of the May PCE report, but the numbers were in line and that led to some dollar selling, at least initially.
At time of writing, all currencies were down vs. the dollar, except for GBP. CFTC positioning emphasized the short-squeeze after the FOMC meeting.
Gold – Silver Speculative Net Longs – Comex
PCE core inflation rose 3.4% in May, as expected. The headline number at 3.9% also matched estimates. The numbers come after CPI data hit 5% in a big surprise. The market eventually digested (and shrugged off) the high CPI reading, but there’s a limit to how many inflation surprises the Fed will tolerate.
The dollar sold off on the headlines but hours later it recovered, in part to a climb in Treasury yields. The bond market continued to be a key barometer. It’s the single-most sensitive asset class to inflation and the Fed. With 10s at 1.52%, the message about transitory inflation is clear, but it will be tested repeatedly in the months ahead and a major repricing would have enormous implications for virtually every global asset class.
The new week starts with a strong rally in crypto, led by a 10% weekend jump in Ethereum. The resolve of the bulls this month despite a battering has been impressive.
CFTC Commitments Of Traders
Speculative net futures trader positions as of the close on Tuesday. Net short denoted by – long by +.
- EUR +89K vs +118K prior
- GBP +18K vs +32K prior
- JPY -53K vs -47K prior
- CHF +14K vs +9K prior
- CAD +43K vs +44K prior
- AUD-17K vs -18K prior
- NZD +3K vs +3K prior
This is the first look we have at post-Fed positioning and it highlights the likelihood that late-coming longs in EUR and GBP were squeezed out on the big USD rally after the FOMC.