Ear to the Ground

28 June 2024

This was a much quieter week in terms of economic data being released.  In the US the focus was on the PCE (personal consumption expenditures) index, being the US Federal Reserve’s (the Fed) preferred measure for inflation, in particular core PCE which excludes the more volatile components of food and energy.  The latter rose 0.1% from May, which was the weakest monthly increase seen since November 2023.  Year on year to May core PCE inflation now stands at 2.6%.  This is now the lowest reading seen since March 2021 and was in line with market forecasts.  Whilst still above the preferred 2% target, the central bank can perhaps take comfort in that it is moving in the right direction again after a period of stickiness at the 2.8% level seen for the last three months.

There remains very little movement in interest rate cut expectations however, following previous commentary from the Fed and due to the upcoming Presidential election.  Consequently, government bond yields have traded a reasonably tight range during June, with a 10 year Treasury yield of between 4.5% and 4.2%, ending the month bang in the middle.

Perhaps one to watch in terms of economic growth over the coming months is excess savings.  During 2020 and 2021 these grew strongly, reaching a peak of $2.1 trillion.  Figures and research from the Bureau of Economic Analysis, San Francisco Federal Reserve, shows that these savings have now been wiped out.  The propensity for the consumer to continue spending will therefore now depend on wage increases they have been able to negotiate, or their willingness to increase debt.

Rather than economic data it was perhaps the share price on Nvidia which caught investors eyes this week.  Having closed at $135.64 (source: investing.com) it subsequently fell and found itself languishing at $118.11 at close on the 24 June, a fall of 12.9%.  This placed the share price in corrective territory, defined as a fall of 10% or more.  There was little to no news to justify this, but it did leave investors trying to quickly quantify where perhaps the share price would find support.  This was found quickly, and on the 27 June, it closed at $123.99, representing a fall of 8.6% from the 18 June.  Large movements all the same and perhaps something to monitor closely moving forward.  Sometimes a change in sentiment and the momentum that brings, both up and down, can be enough.

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