• Light market action…
  • …as a new month and quarter start with Europe etc out for Easter
  • China’s economy posted better PMIs
  • US core PCE was stronger than expected including revisions
  • US consumer spending remains strong
  • BoC’s twin surveys may show somewhat lower inflation expectations
  • Japan’s Tankan survey indicates improved outlook
  • US to update ISM-mfrg, construction spending
  • Peru to update CPI this morning

Market action is restrained with Europe out for their four-day Easter break, but the broad tone is lifting bonds and equities so far. It’s also a new month and quarter and so interpreting these moves has to take possible repositioning into account alongside developments since Friday.

Those developments included better data out of China’s economy, strong US consumption, and in my opinion stronger than expected core PCE inflation upon consideration of upward revisions and the trend. On tap in to the N.A. session will be the BoC’s surveys and some US data.

Friday’s US core PCE inflation was a touch hotter than expected including the effects of revisions (chart 1). February’s reading landed on the screws on Friday at 0.3% m/m SA (0.26% to be exact) with headline PCE inflation a tick below consensus at 0.3%. Core PCE was also revised up a tick to 0.5% m/m the prior month; absent this revision, the February reading would have been hotter than consensus. The three-month moving average of core PCE inflation is 3.5% m/m SAAR which doesn’t exactly scream out to cut. 

Chart 1: US Core PCE

US consumer spending is performing nicely in Q1. Spending was up 0.8% m/m (consensus 0.5%) in nominal terms and in real terms it was 0.4% higher. Real consumption is tracking a gain of 2.1% q/q SAAR in Q1 after 3.3% in Q4. Incomes were ok at +0.3% m/m (0.4% consensus) but the one-tick disappointment has to be weighed against the larger 1% prior gain. Real disposable income is tracking softly at +0.8% q/q SAAR after 2% the prior quarter.

China’s state purchasing managers’ indices improved over the weekend (chart 2). March’s composite PMI jumped 1.8 points higher to 52.7 which is the highest reading since May of last year. That was mostly fed by the non-manufacturing sector (53 from 51.4 prior), but manufacturing provided an assist (50.8, 49.1 prior). More data is required to be able to determine whether this has legs or what just fed by a rebound after the Lunar new year effect in February.

Chart 2: Chinese State PMI

Japan’s Q1 Tankan survey posted a slight improvement. The large manufacturing and non-manufacturing outlook readings both improved and so did the small producer equivalents.

The BoC will release their twin consumer and business surveys this morning (10:30amET). They contain a lot of metrics, but the key may be the measures for inflation expectations as one of the factors that Governor Macklem consistently says is on his list of measures he is following. They could post further improvement as indicated by a fresher small business survey measure, while nevertheless remaining toward the upper end of the BoC’s inflation target range. Canada also updates the little watched S&P manufacturing PMI (9:30amET).

US data risk will focus upon ISM-manufacturing for March that is expected to remain in contraction (10amET). Watch new orders, prices paid and employment gauges. Construction spending is also due for an update for the month of February (10amET).

Across the rest of Scotia’s key markets we’ll also get an update on inflation in Peru when March’s estimate arrives (11amET).

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