25th June - Calm Before The PCE Storm
- Jun 25
- 4 min read
Yesterday was a relatively quiet day, as markets prepared themselves for the PCE figures released today from the US.
The main stories were with regards to oil & US treasury yields, plus the blowout results reported after close from Micron (which will be covered later). Oil continued its post-Iran war fall and is now largely back to pre-war levels, with Brent Crude trading at $74 and US Oil at $70. The result of this was that we saw US treasury yields fall further from their recent highs, with the 10-year yield falling to 4.4% and the 2-year yield to 4.15%. The implication of this is that markets may be starting to consider the disinflation story as real and that inflation may hopefully be less sticky than expected. The PCE print this morning will be a true test of this, though it may come a little early to really see the effects of the falling oil prices.
Forex
With Core PCE to be released this morning, markets were in wait-and-see mode, so in reality, not much happened yesterday in forex markets. The USD continued to show strength but was held back a little by falling treasury yields. The USD/JPY continues to hover just below recent intervention levels at 161.800; a hawkish PCE print this morning would put real pressure on the BoJ and so remains the pair to watch.
The AUD held steady yesterday on mixed inflation results, after its heavy drop the day before. The question for the AUD will be whether the lack of movement was due to markets hesitant to act or because the factors causing AUD weakness on Tuesday have played themselves out.
EUR and GBP held steady on the day, while the same can be said for CHF and JPY on a risk-neutral day overall. CAD seems to have seen the worst of the effects of the oil price falls, as despite continued falls in oil, the CAD seems to have stabilized. There is the possibility this was, again, just down to lack of movement before PCE, but it could be that CAD has now priced in oil returning to pre-war levels and will no longer have such an oversized effect on the CAD moving forward.
Indices
During live trading, the indices were relatively stable, with none of the major US indices moving more than 0.5% in either direction. Markets were holding in anticipation of Micron earnings that were released after the market close, and what a release it was. Revenue came in at $41.5 billion against an expected $35.6 billion, with Q4 revenue guided to a staggering $50 billion, $7 billion higher than expected. Importantly, the company also disclosed for the first time that it had 14 customer contracts in place that provide $100 billion in minimum floor revenue along with $22 billion in customer deposits.
These blockbuster figures drove the stock up by 15% after hours and provided a huge boost to the tech-heavy S&P and Nasdaq, with the Nasdaq alone jumping 3% in the two hours after the release.
This now becomes a true test of whether capital will continue to move from AI/tech stocks into value stocks, a true test of whether the AI balloon is being deflated slowly or whether it will be pumped with more air. The thesis behind the AI weakness was that the AI demand was speculative and revenues could not be guaranteed. Micron confirming that they have $100 billion in guaranteed income could go some way to changing this.
The question for the remainder of the week and into July is now whether the rotation will continue and indices will see a healthy and managed pullback, or will we see further investment into AI/tech stocks and the indices will continue to print fresh all-time highs? The latter seems a dangerous road to go down.
Precious Metals
Metals continued their slide, despite falling oil prices and lower treasury yields. They are now relying on dovish PCE prints this morning to stop the bleeding. Gold fell to the key psychological level of $4000 yesterday. Gold is currently sitting at a key level of support on the daily chart, backed up by the $4000 level itself.
The question now is whether this can give any form of support or whether hawkish or flat PCE prints this morning will continue to push metals lower. Without a catalyst to change the fortunes for metals, I can still only see one direction for metals, and that is to continue downward.
Todays Market Drivers
US Core PCE, 1:30 pm UK time - The inflation prints today for the US will be the main market mover and will be the one everyone is watching.
USD/JPY Intervention levels - Should we see a hawkish PCE print, USD/JPY will be the pair to watch to see if any intervention is actioned by the BoJ.
Post-Micron fallout - The post-Micron moves will be keenly watched, whether capital moves back into AI/tech or whether it continues to flow into value stocks.
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