US Open: Financials soar, PCE inflation sends Yields lower, EUR rebounds

Key gauges of the health of the US consumer will not get much attention since these February readings come in between massive stimulus bills.  US household spending fell by 1.0% and personal income plunged by 7.1% in February.

The key economic release of the morning was the February PCE Deflator reading, Fed’s favorite inflation indicator.  Treasury yields declined after a slightly softer-than-expected PCE Deflator reading suggested inflation is not yet starting to rear its ugly head. 

US stocks want to climb higher given the reopening trade got another boost after President Biden doubled his vaccine goal for his first 100 days.  Softer-than-expected PCE deflator data support the idea that Treasury yields will likely consolidate over the short-term.  The lower the baseline for inflation, the easier markets can become convinced that the upcoming pricing pressure surge will be transitory.   

Financials are rejoicing at the news that many of the Fed’s restrictions on bank dividends and share repurchases will end after June 30.  Financial stocks are the second-best sector this year after energy stocks.  When global COVID-19 cases start trending lower, banking stocks will benefit from rising bond yields. 

EUR

The euro was boosted higher after German businesses became upbeat about the economic outlook despite the short-term headwinds from lockdowns and a disappointing vaccine rollout.  The IFO business climate index improved to 96.6, higher than the 93.2 forecast and upwardly revised 92.7 prior reading.  The IFO President Fuest noted that “despite the rising rate of infections, the German economy is entering the spring with confidence.”  Ifo economist Klaus Wohlrabe noted that Germany was likely to shrink by 0.7% in the first quarter.

The bottom might be in place for the euro, today’s German optimism helps, but the temporary cap in the surge with bond yields is likely the bigger driver.    

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Ed Moya

Ed Moya

Senior Market Analyst – The Americas at OANDA

With more than 20 years’ trading experience, Ed Moya is a senior market analyst with OANDA, producing up-to-the-minute intermarket analysis, coverage of geopolitical events, central bank policies and market reaction to corporate news. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most renowned global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.

Ed Moya

Ed Moya

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