PCE Deflator, Government Shutdown Concerns

Good morning contrarians! Welcome to the Daily Contrarian, our morning look at events likely to move markets. It is Friday, Dec. 20. The Bottom Line segment of today’s podcast starts at (4:30) for listeners who want to skip ahead. Stocks on the Contrarian Radar©️ featuring XLP 0.00%↑ is discussed below but not on the podcast.

State of Play

Stocks ended up unchanged yesterday after a volatile session. Then last night the US Congress rejected a plan from president-elect Musk Trump to avert a government showdown. That is weighing on sentiment as we eye our board of indicators for signs of direction at 0650:

• Stock index futures are a sea of red right now, with tech and small caps seeing the worst of it. The Nasdaq and Russell 2000 are down 1.4% each. S&P 500 futures are pointing to a loss of 0.7%;

• Cryptos are getting beat up as well. Bitcoin is down 9% to trade around $93,000;

• Commodities not doing much better. WTI crude oil is down 2.8% to trade around $68.50/barrel. Copper is unchanged at least;

• Bonds are seeing a few bids, weirdly enough. Flight to safety? The 2-year yield is down 4 basis points to 4.28% whilst the 10-year yield is down 3bps to 4.54% (yields move inversely to prices).

Today’s Known Events

The PCE Deflator, the Fed’s preferred inflation gauge, is out at 0830. This is effectively the last data release of interest this calendar year.

Economists who were surveyed expect a 0.2% month-over-month increase to headline PCE, the same as last month, which would raise the annualized figure to 2.5% from 2.3%. Core PCE, which excludes food and energy, is also expected to print at 0.2% MoM, a small decline from the 0.3% recorded last month, which would nevertheless nudge the annualized Core PCE to 2.9% from 2.8%.

(‘The ticking inflation time bomb’ by author via Grok AI)

It may be the Fed’s preferred inflation gauge, but the PCE Deflator is often a non-event. Reason is that it follows the release of the CPI earlier in the month. Once you have the CPI it’s a lot easier for economists to compute where the PCE will fall. So there is very rarely an outlier from the survey number.