Surprising Strength: U.S. Personal Income Surges in January Despite Consumption Contraction

Economic

Forex

Summary:

In January, U.S. personal income exceeded expectations with a 1.0% monthly growth, while consumption expenditures increased by $43.9 billion. Despite a slight dip in real consumption, the data underscores economic resilience.

In January, personal income in the United States saw a notable increase of $233.7 billion, reflecting a robust 1.0% monthly growth rate, surpassing expectations. Disposable personal income (DPI), which accounts for personal income minus personal current taxes, also experienced a noteworthy rise of $67.6 billion, equivalent to a 0.3% increase. Concurrently, personal consumption expenditures (PCE) saw a $43.9 billion uptick, representing a 0.2% increase.

The PCE price index exhibited a 0.3% increase in January, with a more significant 0.4% rise when excluding food and energy. Meanwhile, real DPI witnessed a marginal decrease of less than 0.1%, and real PCE contracted by 0.1%, influenced by a 1.1% decrease in goods spending and a 0.4% increase in services spending. Surprising Strength: U.S. Personal Income Surges in January Despite Consumption Contraction_1

Surprising Strength: U.S. Personal Income Surges in January Despite Consumption Contraction_1

The surge in current-dollar personal income for January was primarily fueled by increases in government social benefits, personal income receipts on assets, and compensation. Notably, social security benefits, driven by a 3.2% cost-of-living adjustment, and other government social benefits, primarily reflecting an increase in Affordable Care Act enrollments, played pivotal roles. Additionally, personal dividend income experienced growth, driven by information sourced from company financial statements.

Breaking down the $43.9 billion increase in current-dollar PCE for January, a $121.0 billion rise in services spending partially offset a $77.0 billion decline in goods spending. Key contributors to the increase in services spending included housing and utilities, financial services and insurance (led by financial service charges, fees, and commissions), and healthcare (led by hospitals). Within goods spending, notable declines were observed in motor vehicles and parts (mainly new light trucks), gasoline and other energy goods (led by gasoline), and other nondurable goods (led by prescription drugs).

Personal outlays, which encompass the sum of PCE, personal interest payments, and personal current transfer payments, increased by $54.3 billion in January. Personal saving reached $779.3 billion, and the personal saving rate stood at 3.8%.

From a pricing perspective, the PCE price index for January increased by 0.3%, with services prices rising by 0.6%, and goods prices declining by 0.2%. Excluding food and energy, the PCE price index increased by 0.4%. On a year-over-year basis, the PCE price index for January rose by 2.4%, with services prices increasing by 3.9% and goods prices decreasing by 0.5%. Excluding food and energy, the PCE price index increased by 2.8% from the same month one year ago.

Real PCE witnessed a slight decrease of 0.1% in January, with a 1.1% decrease in goods spending offset by a 0.4% increase in services spending. Notable declines in goods spending were led by motor vehicles and parts (mainly new light trucks), while services spending saw growth, particularly in housing and utilities.

In terms of updates to personal income and outlays, estimates for July through December have been revised. These updates include changes in compensation, personal taxes, and contributions for government social insurance, reflecting updated third-quarter wage and salary data. Revised changes from the preceding month for current-dollar personal income, and for current-dollar and chained (2017) dollar DPI and PCE, are provided for November and December.

From a technical viewpoint, the robust growth in personal income and expenditures, along with nuanced trends in prices and savings, presents a comprehensive snapshot of the U.S. economic landscape. The uptick in disposable personal income, coupled with increased spending in various sectors, suggests resilience in the face of economic dynamics. The pricing trends, particularly the PCE price index, provide insights into inflationary pressures, which could have implications for monetary policy decisions.

The January data on personal income, expenditures, and prices in the United States offer a multifaceted view of economic health. The unexpected strength in certain sectors, coupled with pricing trends and personal saving patterns, creates a narrative that extends beyond mere numbers. As these economic indicators continue to shape discussions, market participants will keenly watch for potential impacts on monetary policy and broader economic sentiments.

Source: US Department of Commerce

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Samantha Luan

Economic

Australian retailers had a better January after a dip in sales in December but the bigger picture is one of consumers under financial pressure and spending cautiously.

Retail trade lifted 1.1 per cent over the month after a 2.1 per cent fall in December.

In November, the Australian Bureau of Statistics recorded a 1.5 per cent rise in retail trade.

The see-sawing monthly numbers are thanks to the growing importance of Black Friday sales, which ABS head of retail statistics Ben Dorber says brought a lot of December spending forward to November.

When looking through the volatility of the past few months, retail turnover was unchanged in trend terms, reflecting a still high cost of living and elevated interest rates.

“Rather, spending patterns have shifted because of changes in seasonality around Black Friday as consumers took advantage of discounting in response to cost of living pressures,” Mr Dorber said.

Clothing, footwear and personal accessory retailing recorded the largest rise in January, up 2.4 per cent, with all categories lifting over the month apart from food retailing, which fell a modest 0.1 per cent.

NAB senior economist Taylor Nugent said the bounce in retailing was smaller than the 1.5 per cent increase economists were expecting.

But, a big upwards revision to the December figure meant the result was pretty well in line with forecasts.

Zooming out, Mr Nugent said retail spending was weak – just 1.1 per cent higher than a year ago – and that was with strong population growth.

“That is reflective of the consumption response to real income pressures, and we expect weak consumption growth to be a feature of the December quarter GDP data released next week as well,” Mr Nugent said.

Australian Retailers Association chief executive officer Paul Zahra said the annual data showed shoppers limiting their spending after Christmas and the first week of Boxing Day sales.

“The two strongest performers, ‘other retailing’ and cafes, restaurants, and takeaway, would have been bolstered by people wanting to enjoy their summer outdoors,” he said.

Mr Zahra said discretionary categories suffered the biggest declines as households reined in their spending.

The statistics bureau also reported new business investment data, with private new capital expenditure up 0.8 per cent in the December quarter of 2023 and 7.9 per cent higher than a year ago.

The quarterly result was above the 0.5 per cent lift expected but the pace of quarterly growth in spending has slowed from its 2023 highs.

AMP Australia deputy chief economist Diana Mousina said retail trade, business investment and other data released this week – including a softer-than-expected inflation report – was consistent with the Reserve Bank staying on hold in March.

“Stronger business investment will add to GDP growth, but the weakness in the consumer is an offset to stronger capital spending,” she said.

“We think that the RBA should shift to a neutral bias on monetary policy because the economy has already weakened, but the RBA’s concern around a renewed lift in inflation means they are likely to tread carefully and maintain its soft hiking bias for now.”

Source:AustralianAssociatedPress

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Chandan Gupta

Stocks

Traders' Opinions

Fundamental Analysis

Investors closely turn to the Federal Reserve for direction as the S&P 500 maintains its high levels. The sentiment on Wall Street seems to hinge on the belief that the Federal Reserve acts as a safety net in the current scenario.

In the electronic trading session, the S&P 500 appears to be treading water, showing minimal overnight movement. The prevailing market sentiment is undeniably bullish, but the stance one takes largely depends on their strategy. The critical question emerges: are you on the lookout for value, or are you inclined to chase the S&P 500?

In my perspective, prioritizing value is the prudent approach. The market has experienced a substantial 25% growth in recent months, signaling a need for correction. Even a modest retreat to the 5,000 level holds significance as a round number, likely to capture attention. At that point, a considerable number of investors may consider taking long positions.

The trajectory depends significantly on the Federal Reserve's decision to implement cuts this year, a highly anticipated move. With intentions to reduce interest rates three times, stocks are poised for a moderate uptick. The entry point becomes a pivotal consideration. While the 5,000 level appears attractive, a breach beyond 5,100 could trigger FOMO-driven purchases.

The 50-day EMA adds another layer of interest, dipping below 5,000 and rising to 4,800. The market dynamics are influenced by a select few stocks, making shorting less appealing. Instead, focusing on these influential stocks and treating them as an ETF while keeping an eye on the 'Magnificent 7' seems a pragmatic approach. Amidst the buzz, it's crucial to acknowledge the existence of approximately 493 stocks that often fly under the radar.

While there's potential for upward movement given sufficient time, caution is paramount. Blindly pursuing trades is ill-advised. In navigating this market, it's prudent to trade with a mindset attuned to a robust bullish trend.

In summary, as market players look to the Federal Reserve for cues and the S&P 500 maintains its high position, a nuanced approach focusing on value and strategic entry points appears to be the key to navigating the current bullish market sentiment. Balancing optimism with caution, especially with an eye on influential stocks, can be a prudent strategy in the dynamic landscape of the market.

Technical Analysis

S&P 500 Monitoring Federal Reserve Moves for Market Impact_1

Yesterday, the S&P 500 continued to retreat from the highs as the market is waiting for the key catalysts in the next few days and weeks. Nothing has changed in the bigger picture as the Fed is still considering rate cuts conditional on the disinflationary trend being intact. The data has been good but what will matter the most is the next CPI report as that will tell us if the progress on inflation has indeed stalled, or worse, reversed. Before that we will get many important reports including the NFP, but as long as they remain benign the market will likely keep on rising.On the daily chart, we can see that the S&P 500 is now near the key trendline where we can also find the blue 8 moving average for confluence. This is where we can expect the buyers to step in with a defined risk below the trendline to position for a rally into new highs. The sellers, on the other hand, will want to see the price breaking lower to position for a drop into the 4920 level. S&P 500 Monitoring Federal Reserve Moves for Market Impact_2

S&P 500 Monitoring Federal Reserve Moves for Market Impact_2

Risk Warnings and Disclaimers

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Alex

Commodity

Gold prices opened on the Multi Commodity Exchange (MCX) on Thursday at Rs 62,270 per 10 grams and hit an intraday low of Rs 62,248. In the international market, prices hovered around $2,034.78 per troy ounce.

Meanwhile, silver opened at Rs 70,841 per kg and hit an intraday low of Rs 70,841 on the MCX. The price hovered around $22.5 per troy ounce in the international market.

COMEX Gold prices wavered before the US PCE data and closed marginally lower on Wednesday as investors remained cautious. However, some support was rendered amid the drop in yields and the dollar after a downward revision in the US Q4 GDP. Data showed that the US economy expanded an annualised 3.2% in Q4 2023, slightly below 3.3% in the advance estimate, following a 4.9% rate in Q3, per Kotak Securities research report.

Meanwhile, three Federal Reserve officials said the pace of interest-rate cuts will depend on incoming economic data, suggesting the path to lower borrowing costs may look different than in previous rate-cutting cycles. Boston Fed President Susan Collins and New York’s John Williams said the Fed’s first rate cut would likely be appropriate “later this year,” while Atlanta’s Raphael Bostic said he’s currently pencilling in a cut for some time this summer. The Fed’s preferred PCE price index will be in the spotlight for the day. After the release of hotter-than-expected CPI and PPI for January, the Fed’s preferred PCE price inflation is also expected to see an uptick, per Kotak Securities research report.

The core PCE is seen rising 0.4% m/m, the second straight monthly acceleration in a gauge that’s largely been receding over the past two years. Hotter-than-expected inflation numbers might be a headwind for gold prices.

COMEX Silver prices extended declines and closed at a two-week low amid weakness in the industrial metals on Chinese demand concerns.Hawkish comments from Fed officials weighed on the bullions, despite a decline in dollar and yields after downward revision in US GDP data for Q3. Risk sentiments might remain limited ahead of the much-awaited US PCE price index, which might provide further cues on the Fed’s policy path.

Jateen Trivedi, VP Research Analyst, LKP Securities, said, "Gold prices remained weak, declining by Rs 211 in MCX to reach Rs 62090, driven by strength observed in the US Dollar index, which surpassed $104. This uptick in the dollar exerted downward pressure on gold, causing it to trade below the 26-day moving average at Rs 62200."

The ongoing week is marked by significant data releases, with US GDP numbers and the Core PCE index data . Despite these data-driven events, Gold prices have not received substantial support, leading to continued weakness.

“Looking ahead, the key support level for gold stands at Rs 61800, and a breach of this level could potentially push prices further down towards Rs 61000. Traders and investors should closely monitor the upcoming data releases and market dynamics to gauge the direction of Gold prices and identify potential trading opportunities," said Trivedi.

Source：MoneyToday

Risk Warnings and Disclaimers

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Samantha Luan

Commodity

Recent discussions about China's potential purchase of U.S. corn have led to an uptick in corn prices, boosting market optimism. Soybeans follow suit with a rebound, but wheat faces challenges. Livestock markets see a downturn amid broader economic concerns.

Global Markets Stir: China's Corn Buy Sparks U.S. Prices, Wheat Dips, Cattle Falters_1

Recent discussions about China's potential purchase of U.S. corn have stirred the agricultural markets, leading to a noticeable uptick in corn prices on Wednesday. This development, alongside short covering, has injected optimism among traders, even as soybeans follow suit with a rebound. However, the wheat market has taken a hit, succumbing to pressures from declining European prices, while cattle prices see a downturn amid profit-taking and broader economic concerns.

Commodity Markets on Edge: Corn and Soybeans Rise, Wheat Falls

Amidst the backdrop of fluctuating global markets, corn has emerged as a standout performer, buoyed by the prospect of increased Chinese purchases through the Pacific Northwest. This potential move has not only encouraged bullish sentiment within the market but has also placed corn prices on an upward trajectory. Soybeans, not to be outdone, have mirrored corn's uptick, capitalizing on a resurgence in soybean meal prices from previous lows. These developments signal a tentative optimism in the agriculture sector, hinting at a possible stabilization or even growth, contingent on sustained demand and trade dynamics.

Conversely, the wheat market faces challenges, with prices taking a downward turn. This decline is largely attributed to the dip in European wheat prices, marking new lows and casting a shadow over the commodity's immediate future. The disparity in the trajectory of these key agricultural commodities underscores the complex interplay of global supply, demand, and geopolitical influences shaping market outcomes.

Livestock Markets Under Pressure: Cattle Prices Drop

The livestock sector has not been immune to the market's volatility, with cattle prices experiencing a significant pullback. This downturn is primarily driven by profit-taking activities among traders, compounded by the broader economic landscape. Inflationary pressures, manifesting in a weakened stock market, have further exacerbated the situation, leading to a cautious or even bearish outlook among investors. This shift reflects the intricate relationship between commodity markets and overarching economic indicators, highlighting the susceptibility of livestock prices to external financial trends.

Implications for Market Dynamics and Future Outlook

The current developments in the agricultural and livestock markets are indicative of a period of adjustment and realignment. As traders and investors navigate through the complexities of global trade relations, particularly the impact of China's purchasing decisions on U.S. commodities, the market remains watchful. The potential for China's increased engagement in the corn market presents a pivotal moment, possibly heralding a new phase of market dynamics characterized by heightened demand and competitive pricing.

However, the volatility in wheat and livestock prices serves as a reminder of the unpredictable nature of commodity markets. These fluctuations, while challenging, also offer opportunities for strategic positioning and risk management. As the market continues to digest the implications of these developments, stakeholders will be keenly observing the interplay between supply chain adjustments, trade policies, and consumer demand patterns. The coming months will prove crucial in determining the trajectory of these key commodities, setting the stage for a dynamic and possibly transformative period in global agricultural markets.

Source：bnn

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Samantha Luan

Economic

Financial Secretary Paul Chan on Wednesday said the city will log a deficit of HK$102 billion ($13 billion), roughly 3.2% of GDP, in the year to March thanks to substantially lower income from land sales and stamp duties. Its buffers are healthy but are eroding without a clear plan to make that worthwhile.

The administration will stay in the red in the next financial year too, although it reckons the deficit will halve. That would be Hong Kong's fifth deficit in six years. Hong Kong officials may have subscribed to the notion that it is unnecessary for the territory to maintain a large fiscal reserve, as it has done so for decades. Since 2018, the government's nearly HK$1.2 trillion fiscal reserve has shrunk to HK$733 billion, which is not enough to pay off a year of public expenditure. Government debt will stay below 13% of GDP in the next five years, Chan said. That is low compared to other developed economies but the finance hub once enjoyed a debt-free halo.

There are easy explanations for the shift in financial status. Hong Kong has grappled with the pandemic, geopolitical tensions and, most recently, is caught between a weak Chinese economy and high U.S. interest rates. The Hong Kong dollar is pegged to the greenback.

The bigger question for the city burning through its buffers is whether it has plan. Some of the most entrenched structural challenges, such as a heavy reliance on land sales and stamp duty, remain unresolved. The territory's push to turn itself into a tech hub has fallen flat, partly because of high property prices.

Other efforts appear piecemeal. The decision to increase the tax on the city's highest-earning professionals to 16% is sensible; that is still well below the top rate Singapore levies. Yet putting on a fireworks display every month is not enough to invigorate tourism; the city is not on the itinerary of global music stars including Taylor Swift. There is also no compelling response to the increasing desire of Hong Kong consumers to shop across the border in Shenzhen where goods are cheaper and services are of a high quality.

The Hong Kong government may be counting on a rebound in the property market as it has now scrapped all the tightening measures, including extra stamp duties for non-local homebuyers. It expects proceeds from land sales and stamp duty to amount to 16% of income in the coming financial year, down from 42% in 2018. These are typically volatile. A pickup in the Chinese economy, and rate cuts in the U.S. will help.

Yet there is a lingering worry that Hong Kong is losing its competitiveness and attractiveness on the global stage. The latest budget highlights the costs of those problems without offering clear solutions.

CONTEXT NEWS

The Hong Kong government on Feb. 28 reported a consolidated deficit of HK$101.6 billion ($12.98 billion) for the fiscal year ending March 2024. Financial Secretary Paul Chan forecasted a deficit of HK$48.1 billion for the coming year in his annual budget speech.

Hong Kong’s fiscal reserves will decrease to HK$733.2 billion by the end of March, down from nearly HK$1.2 trillion in 2018. The ratio of government debt to GDP will be in the range of 9%-13% in the next five years, Chan said.

Source：Reuters

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Alex

Economic

Bond

Japanese government bond (JGB) yields rose on Thursday after Bank of Japan (BOJ) board member Hajime Takata called for an overhaul of ultra-easy monetary policy, strengthening market expectations that normalisation is imminent.

Takata said measures that should be under consideration include an exit from yield curve control (YCC), negative interest rates and a tweak to the BOJ's commitment to keep expanding its monetary base until inflation stably exceeds 2%.

The benchmark 10-year government bond JP10YTN=JBTC rose 2 basis points (bps) to a one-week high of 0.715%.

While the JGB market has already priced in an exit from negative interest rates at the bank's March or April meeting, Thursday's remarks seemed to give further confirmation, Makoto Suzuki, senior bond strategist at Okasan Securities, said.

"The market is probably more uncertain about whether the BOJ will be able to raise its policy rate gradually this year, or if ending negative interest rates will be all they can do."

Sources familiar with the BOJ's thinking say the central bank is on track to exit from negative rates in coming months.

A majority of economists polled by Reuters this month said they believe Japan's central bank will end its super easy policy at its April meeting.

With imminent policy normalisation priced in, a sale of two-year JGBs on Thursday saw somewhat lukewarm demand, despite the yield - which moves inversely to prices - sitting at its highest in over a decade.

The auction received bids worth 3.62 times the amount sold, lower than the bid-to-cover of 3.74 at the previous auction for the bond. A lower bid-to-cover ratio suggests weaker demand.

The two-year JGB yield JP2YTN=JBTC was last up 2 bps at 0.180%, hitting its highest since May 2011 after the auction.

The five-year yield JP5YTN=JBTC sat 2.5 bps higher at 0.370%, after touching a near three-month peak of 0.380%.

The 20-year JGB yield JP20YTN=JBTC rose 1.5 bps to 1.460%, while the 30-year JGB yield JP30YTN=JBTC climbed 3 bps to 1.755%.