Synopsis:

TD Securities underscores the significance of the upcoming core PCE data, considering it pivotal for shaping market expectations and movements in 2024. Amid fluctuating market sentiments and diverse economic indicators, this release is anticipated to be a crucial determinant of future monetary policy and currency valuations.

Key Points:

• Significance of Core PCE Data: TD Securities posits that this week’s core PCE print could be one of the year's most crucial data releases, potentially setting the stage for monetary policy direction and market movements for the remainder of the year.

• Market Uncertainty and Sentiment: Recent discussions with clients across Europe reveal a general lack of conviction in current market directions, though there is a consensus that a significant pivot point may be near. This sentiment is mirrored by the market’s mixed reactions to various economic indicators such as growth divergence, risk correlations, and central bank policies.

• Influence on USD and Risk Assets: The core PCE data is particularly critical as it directly influences perceptions of inflation and, consequently, the Fed's rate decisions. A result that aligns with expectations of cooling inflation could support a moderate reversal in USD strength through the third quarter, benefiting risk assets and potentially realigning Fed rate expectations with those of other G10 central banks.

• Implications of an Unexpectedly High Inflation Print: Conversely, a higher-than-expected inflation figure could diminish prospects for Fed rate cuts this year, likely leading to further USD appreciation and adverse impacts on risk assets. This scenario would reinforce the dollar’s strength on the back of persistent inflation and diverging central bank policies.

Conclusion:

The upcoming core PCE print is pivotal in determining short- to medium-term market dynamics and central bank actions. Investors and traders should prepare for potential volatility following this release, as it could significantly influence market sentiment and strategic positioning. The outcome could either affirm a trajectory toward easing monetary conditions or herald continued restrictive policies driven by persistent inflationary pressures.