Breakfast Bites - US Savings dips

Persistent US spending comes from a dip in savings; China's PMI come in higher; Global PMIs still mixed

Rise and shine everyone and Happy Monday.

US equity futures are trading higher after a 3-day weekend for the markets.

Equity indices in the Asia-Pacific region also began the week on a mostly higher note while markets in Hong Kong, Australia, and New Zealand remained closed for Easter Monday. Equity indices in the Asia-Pacific region began the week on a mostly higher note while markets in Hong Kong, Australia, and New Zealand remained closed for Easter Monday.

The US PCE Inflation numbers came in mostly in line with expectations but higher than previous. Headline numbers came in at 2.5% YoY while core PCE inflation came in at 2.8% YoY, not too far away from the Fed’s forecast of 2.6% for the year.

Gold is surging again, while Oil pulls back marginally. The US dollar remains flat and Bitcoin has pulled back below 70K again. Yields on the short end are lower this morning with the idea that the Fed will definitely cut rates this year.

Big Stories

Persistent spending comes from a dip in Savings

Year over year, the PCE Price Index increased by 2.5%, compared to 2.4% in January, while the core PCE Price Index rose by 2.8%, down from 2.9% in January.

The key takeaway is that price increases are persisting with another significant observation being the notable imbalance between spending and income. Particularly noteworthy is the decline in the personal savings rate as a percentage of disposable income, dropping from 4.1% to 3.6%, suggesting that increased spending was fueled by consumers dipping into their savings.

  • Wages and salaries jumped a hefty 0.8% month-over-month after a 0.3% increase in January.

  • Rental income increased 1.6% month-over-month in the wake of a 1.4% increase in January.

  • Personal interest income was down 0.4% month-over-month while personal dividend income fell 3.7%.

  • Real disposable income declined 0.1% month-over-month and was up 1.7% year-over-year.

  • Real personal spending increased 0.4% month-over-month following a 0.2% decrease in January and was up 2.4% year-over-year.

China’s PMI improvement

The other big news in Asia is an improvement in China’s manufacturing PMI data, particularly the official number that’s been languishing in contractionary territory. The official PMI reading showed the first expansion in 6 months and reached a one-year high at 50.8 V 50.1E (1st expansion in 6 months, one-year high).

Non-manufacturing PMI came in at 53.0 v 51.4e while Composite PMI: 52.7 v 50.9 prior.

The Caixin data also showed an improvement. The Caixin usually covers smaller export-oriented firms, so this is a good sign.

Equities saw an uptick in a celebration of this data and this is something we discussed recently in our article on China. In the short run, the cycle has bottomed and is improving based on previous comparables. This will help fuel equities in the short term but we still remain cautious on China from a long-run investment perspective.

Global PMI data mixed

  • Malaysia Mar PMI Manufacturing: 48.4 v 49.5 prior [18th month of contraction]

  • Taiwan Mar PMI Manufacturing: 49.3 v 48.6 prior [22nd month of contraction]

  • Thailand Mar PMI Manufacturing: 49.1 v 45.3 prior [8th month of contraction]; PMI posted one of its largest ever month-on-month gains

  • South Korea Mar PMI Manufacturing: 49.8 v 50.7 prior [first contraction in 3 months ] Comments- Both output and new order volumes declined, albeit only fractionally as firms mentioned that weak demand and a muted domestic economy held back production and sales. One bright light however was that export demand rose for the third month in a row and at a stronger rate.

  • Vietnam Mar PMI Manufacturing: 49.9 v 50.4 prior [first contraction in 3 months **which also reflected a decline in input cost inflation and lower selling prices

  • Philippines Mar PMI Manufacturing: 50.9 v 51.0 prior [7th month of expansion]

  • Indonesia Mar PMI Manufacturing: 54.2 v 52.7 prior [30th month of expansion; the fastest improvement in operating conditions in nearly two-and-a-half years]

  • Japan Mar Final Manufacturing PMI: 48.2 v 48.2 prelim (confirms 10th month of contraction)

Quote of the Day

Fed Chair Powell: Fed is not under pressure to cut rates, but waiting too long could mean unneeded damages to the economy and the labor market; Still expect inflation to come down on a sometimes bumpy path to 2%

Chart of the Day - BofA’s top 10 US ideas list for the Q2, 2024

BofA’s flow show from last week

  • Japan's Q1 Tankan All Big Industry Capex 4.0% (expected 9.2%; last 13.2%). Q1 Tankan Large Manufacturers Index 11 (expected 10; last 13) and Q1 Large Non-Manufacturers Index 34 (expected 31; last 32). March Manufacturing PMI 48.2, as expected (last 47.2)

  • South Korea's March trade surplus $4.28 bln (expected surplus of $5.75 bln; last surplus of $4.29 bln). March Imports -12.3% yr/yr (expected -8.1%; last -13.1%) and Exports 3.1% yr/yr (expected 5.2%; last 4.8%).

  • US said to be drawing up a list of advanced Chinese chipmaking factories barred from receiving key tools; The list could be released in the next couple of months - press (update) - US aims to make it easier for companies to stem technology flows into China.

  • Former Fed Vice Chair Clarida said the Fed could cut rates in Jun, suggests rate cut could be framed as a one-off adjustment.

  • Macau Mar (COP) Casino Rev 19.5B; Y/Y: 53.1% v 49.2%e.

  • Swiss agricultural chemicals company Syngenta has canceled a $9B Shanghai listing, which would have been one of China's largest initial public offerings in years. The decision was made after careful consideration of the industry environment and Syngenta's development strategy.

  • Luxury has experienced a sector-wide slowdown following the end of the pandemic-era boom, with organic sales growth at top luxury groups expected to slow to 7.5% this year, according to HSBC. This is due to the dry-up of extra savings and the economic outlook of China, which has dwindled the growth of luxury growth engines. **


(news taken from Reuters, FT, Bloomberg; Calendar from Trading Economics)

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