US PCE eyed as China rebound accelerates

A look at the day ahead in U.S. and global markets

By Mike Dolan, Editor-At-Large, Financial Industry and Financial Markets

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U.S. stocks surf new records as the last full week of the quarter comes to a close, with China's furious monetary easing accelerating the rebound there and Wall Street eyeing the release of the Fed's favored inflation gauge.

After a barrage of interest rate cuts, real estate props and stock market supports this week, China's central bank cut its one-week reverse repo rate by another 20 basis points on Friday - trying to get across what it likely sees as an alarming economic slowdown that may see it miss 2024 targets.

Reuters reported Chinese cities Shanghai and Shenzhen are planning to lift remaining restrictions on home purchases to attract potential buyers and shore up flagging real estate markets.

Whether the widening stimulus proves effective or not, the forcefulness and intent is becoming clear. As is the backdrop.

China's industrial profits swung back to a sharp contraction in August, plunging almost 18% from a year earlier, according to new data.

But heading into a series of holidays next week, China's mainland stocks indexes surged anew - adding another 4.5% again on Friday to notch their best week since 2008.

Employees work on an electric vehicle (EV) production line during an organised media tour to a factory under Jiangling Group Electric Vehicle (JMEV), in Nanchang, Jiangxi province, China May 22, 2024. REUTERS/Kevin Krolicki

 With new public borrowing central to the plan and hopes of some recovery afoot, 10-year Chinese government bond yields pushed higher. But the offshore yuan backed off 16-month highs amid reported selling by state banks.

Back on Wall Street, the persistent strength of the U.S. economy was underlined on Thursday by another surprising drop in weekly jobless claims, robust durable goods orders last month and second-quarter post-tax corporate profit growth that was revised higher to 3.5%.

Attention now turns back to inflation to see if the Federal Reserve's projected easing path is warranted in that light, and August PCE gauge is released later on Friday.

While consensus forecasts are for a 0.2% rise in 'core' PCE last month that would see the annual rate tick up to 2.7% from 2.6%, Fed governor Christopher Waller suggested last week softening components in that report were a key reason for the Fed's outsize 50-bp rate cut.

Federal Reserve Governor Lisa Cook on Thursday endorsed the size of that cut as a way to address increased "downside risks" to employment. "I whole heartedly supported the decision."

Treasury Secretary Janet Yellen said the economy was on course for a 'soft landing' and that would allow Fed rates to come down to 'neutral' levels - seen by Fed officials and financial markets as around 3% compared to the current 4.75-5.0% range.