From the desk of Vance Howard:
Chart: QQQ 1-year daily
The market is trading just about as anticipated, with a pullback in the last week or so, and a nice rally pushing us up into the important range of $322 on QQQ. If we can get a powerful breakthrough in this area of resistance, that would be very bullish for the markets going forward. Also, look at AGG, the aggregate bond index, which is trading much better for the overall bond market. It is trading above the 200-day moving average and trying to break out of a pivot point, which could be very bullish for the bond market overall. Could the bond market be signaling to us that the Fed is almost done raising rates?
Although both headline and core PCE inflation pressures eased in March, progress was uneven and likely not enough for the Fed to call it quits on tightening. We expect another rate hike this week. Even if the tightening cycle ends soon, so that lagged policy effects can play out, we expect the Fed to keep rates higher for a period.
The PCE Price Index edged up 0.1%, the least in eight months, led by lower food and energy prices. Core PCE prices increased 0.3%, the smallest gain in four months, and matching the consensus. Core goods prices, which were falling late last year, rose 0.2% in March, its third consecutive gain, and more than in the prior month. Core services prices, however, rose 0.3%, the least in eight months, as housing price gains moderated.
On a y/y basis, PCE inflation fell to 4.2% from 5.1% in the previous month, the slowest rate since May 2021. Core PCE inflation showed less progress, ticking down to 4.6% from 4.7%, above the consensus of 4.5%. Services ex-energy and housing inflation, or the super-core, edged down to 4.4% from 4.7%, but remained within its 3.9%-5.1% range over the past two years. Since the super-core tends to be sticky, it suggests that the broader core PCE inflation will have a hard time reaching the Fed’s 2.0% target.
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