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On the last trading day of the week, month, quarter and six months, the market breathed a sigh of relief after inflation figures from the US showed annual price growth of 3.8 per cent in May.
PCE, which stands for “personal consumption expenditures”, is closely followed by the Federal Reserve as a basis for calculating inflation and is often referred to as the central bank’s preferred measure of price growth.
Core inflation, according to PCE, was 4.6 per cent in May. In April, PCE inflation was 4.4 per cent on an annual basis, and core inflation was 4.7 per cent.
Two oil funds
Apple rose immediately from the start and kept the boil throughout the day. The increase of just over two percent, to a closing price of $194, made the tech giant the first company to have a market value of a historic $3,000 billion.
To put the figure in context, Apple’s market value corresponds to more than twice as much as Norway’s oil fund, which at the time of writing has a value of just over NOK 15,000 billion.
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In Europe, the leading indices also finished in positive territory for the day. This meant that the broad Stoxx 600 index rose 7.7 per cent in the first half of the year, despite persistently high inflation and rising interest rates across the continent. However, the development is small compared to the USA:
The Nasdaq Composite rose one and a half percent and is thus up 32 percent so far this year. The first six months of 2023 were the best start to a year since 1983. Regardless of which half of the year, the first six months of 2023 were the best since the second half of 1999. It is the tech giants such as Apple, Meta, Amazon, Microsoft and Nvidia who has dragged the load. The latter has tripled in value since the turn of the year. The Dow Jones gained 0.8 percent and has risen four percent so far in 2023. The S&P 500 ended the half-year with a rise of 1.2 percent and is up just over 16 percent for the year.
More interest rate hikes?
In contrast to the consumer price index (cpi), the weighting of goods and services in the PCE is adjusted to take into account changes in the people’s consumption habits. The PCE deflator is the quantity that the US central bank uses as a basis in its calculations of inflation trends, and is therefore the Fed’s preferred measure of price growth.
Last week, Jerome Powell and the monetary policy committee decided to keep the key interest rate steady, but the overview “dot plots” released the same evening gave clear signals that the interest rate will continue to rise.
Dot plots tell what the members of the Fed’s interest rate committee think about the level of interest rates going forward. Ahead of the meeting, it was expected that this overview would point in the direction of one simple interest rate hike for this year.
The bottom line is that the Fed’s interest rate committee envisages two more interest rate hikes this year.
At the previous dot plot – in March – the members of the Fed’s interest rate committee believed on average an interest rate level of 5.1 per cent at the end of 2023. This was recently revised upwards to 5.6 per cent.
Pike action
On Wednesday this week, a bunch of heavyweights gathered for a panel debate, when ECB chief Christine Lagarde, Federal Reserve chief Jerome Powell, BOE chief Andrew Bailey and Japan’s central bank governor Kazuo Ueda took their place on stage.
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Lagarde repeated the message that another interest rate hike is very likely at the next meeting in July, while Bailey admitted that inflation has remained uncomfortably high due to less labor force after the pandemic.
Powell estimated that he and the Federal Reserve interest rate committee envision at least two more interest rate hikes.
– We think there is more tightening to come. The driver is a very stretched labor market. I do not want to rule out the possibility of several interest rate hikes in a row, he stated.
All three warned that further interest rate hikes may be necessary to bring down inflation.
US Federal Reserve Chairman Jerome Powell. (Photo: ELIZABETH FRANTZ/Reuters/NTB) More…
Strong labor market
Powell went on to say that the US economy has shown strength despite many expecting a recession in the coming months.
According to the governor of the central bank, there is still an opportunity to avoid very high unemployment, which has previously been the consequence when interest rates have been raised. The reason for this is that there is still a need for labour.
Regarding a possible recession scenario, Powell said he does not see it as the most likely outcome, but still emphasized that it is a possibility for it to occur. He went on to pour cold water down the backs of those who hoped for a quick normalization of the high price increase.
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Powell does not expect that core inflation in the US will fall to two percent either this year or next year, but only expects that to happen in 2025.
– We will be restrictive as long as necessary, he said.
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2023-06-30 20:15:00
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