Market Wire: US Inflation Moderates, Canadian Economy Grows More Than Expected
The Federal Reserve’s preferred inflation measure missed expectations in February, weakening the case for another hike at the central bank’s May meeting. Data released by the Bureau of Economic Analysis this morning showed the core personal consumption expenditures index - targeted by the Fed - rising 0.3 percent in February from the prior month, up 4.6 percent year-over-year - coming in slightly below consensus estimates. The overall personal consumption expenditures index was up 5 percent from a year ago.
Personal income rose 0.3 percent month-over-month, decelerating from January’s Social Security-boosted 0.6-percent gain. Incomes were 6.2 percent higher relative to the same month last year, led by a 7.7 percent increase in private sector wages and salaries. Inflation-adjusted household outlays climbed 0.2 percent, missing forecasts by a hair.
Front-end yields slumped and the greenback inched downward as traders lowered odds on another move in early May - and as hopes for rate cuts grew modestly stronger. The two year Treasury yield fell to 4.1 percent, and equity futures moved higher on the news.
Separately, a preliminary estimate showed the Canadian economy growing 0.3 percent on a month-over-month basis in February, suggesting that underlying momentum remains far stronger than many had expected. Statistics Canada said output grew 0.5 percent in January, with virtually every major sector showing signs of expansion, including manufacturing, oil and gas, accommodation and food services, and wholesale trade. The Canadian dollar climbed slightly in the minutes after the data hit the wires as traders reduced bets on an imminent reversal in the Bank of Canada’s rate cycle - with growth on track to hit a 2.8-percent annualized pace in the first quarter, policymakers are exceedingly unlikely to see a compelling case for more monetary accommodation at this time.