Can US Data Bring Back Risk Appetite

Yesterday, markets took a decidedly risk-on stance through early trading. Some of this was recovered by the evening. But corporate reports have provided investors with plenty of reason to pause. Microsoft was one of the bigger companies to contribute to pessimism, as it reported slower growth in its enterprise software division. This implies that many companies have reduced expenses, and have not seen the need to increase.

The slow economy story is weakening the dollar, largely due to Fed expectations. If the US slips into recession at the beginning of the year, it is speculated that the Fed will not hike as aggressively, and could even begin to cut. After a series of negative corporate reports, the US will provide a series of key data that could move the markets. The question is will the data contribute to the constructive pessimism, or will it support the case for growth? Can the dollar bounce back from here?

US Durable Goods Orders

Durable goods orders are one of the key indicators for an economy’s economic outlook. It measures how big companies invest in the long term. If the economy is doing well, usually businesses want to invest to increase profits in the future. But if there is economic uncertainty, businesses will hold back longer-term investments to preserve capital to weather a downturn.

US December durable orders are expected to rise 2.2%, a reversal of the -2.1% reported in November. That would contradict some of the industry data that has come out in recent days and could provide some optimism. If the figure disappoints, however, it could add another piece of data to the story of a coming recession.

US Core PCE Price Index

Core PCE is the preferred inflation measure used by the Fed, and can have a greater impact on monetary policy expectations than CPI figures. There has been an increased focus on core price changes such as the falling cost of energy filters across the economy.

December Core PCE Price index is expected to show a monthly increase of 0.1%, down from 0.2% previous. On an annual basis, that would be a drop to 4.6% from 4.7%. A tempo in this measure would likely raise expectations of more tightening from the Fed in the near term. Currently, more than 90% of economists expect the Fed to hike by 25bps next week.

United States Personal income and expenses

The consumer is the driver of the US economy, making these indicators key to expectations of how the economy will perform. Inflation eats away at disposable incomes and real wages falling for months, leading to depressed demand. It should be noted that the BLS does not adjust for inflation in this statistic. Monthly inflation for December was reported at -0.1%.

December Personal income is expected to have grown 0.3%, down from 0.4% in November. But factoring in inflation, that would be a similar growth rate. Personal spending, on the other hand, is expected to decrease -0.1% compared to 0.1% in November.

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