US OUTLOOK/OPINION: Macro Since Last FOMC: Inflation - Firm Core PCE Trend [1/2]
- Realized inflation data had seen a renewed wedge between core CPI and core PCE in recent months although they shared a similar trait in March with a particularly soft print.
- One notable driver here was a sharp -3.5% M/M decline in lodging away from home prices, the largest since Jan 2022. It’s a noisy series and so should be treated with caution, but considering it comes against a backdrop of reduced foreign arrivals at US airports as a consequence of a broad array of Trump administration policies, it offers an interesting partial counterbalance of expected price increases on large tariff increases.
- With that in mind, core PCE inflation came in at just 0.03% M/M in March after a booming 0.50% M/M in February and a solid 0.34% M/M in January.
- This recent trend strength means that whilst the year-ago rate fell three tenths to 2.65% Y/Y in March, both three- and six-month rates continue to run firmer at 3.5% and 3.0% annualized respectively.
- Some residual seasonality concerns around the start of the year may still be at play but this marks a still notable acceleration in the six-month rate from the 2.3% in Sep 2024 having come close to the 2% inflation target.
- For context, this recent trend strength along with some FOMC members starting to factor in tariff assumptions saw a marked increase in near-term median inflation expectations back in the March SEP. The median participant increased their 4Q25 forecast from 2.5% in the Dec SEP to 2.8% (central tendency 2.7-3.0%) but kept to the same 2.2% for 4Q26 albeit with both legs of the central tendency drifting a tenth higher to 2.1-2.4%. That is to say, most expected the uptick in inflation to be temporary but these forecasts of course came before much more wide-ranging reciprocal tariffs in early April.
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
AUSSIE 10-YEAR TECHS: (M5) Strong S/T Bounce
- RES 3: 96.501 - 76.4% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 2: 96.207 - 61.8% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 1: 95.915 - High Apr 4
- PRICE: 95.860 @ 16:42 GMT Apr 04
- SUP 1: 95.420/95.300 - Low Feb 13 / Low Jan 14
- SUP 2: 95.275 - Low Nov 14 (cont) and a key support
- SUP 3: 94.640 - 1.0% 10-dma envelope
Aussie 10-yr futures extended a recent strong bounce through to the Friday close, putting prices through the top end of the recent range. The confirmed breach of 95.851, the Dec 11 high on the continuation contract, reinstates a bull cycle and focuses attention on resistance at 96.207, a Fibonacci retracement point. A stronger bearish theme would expose 95.275, the Nov 14 low and a key support. Clearance of this level would strengthen a bearish condition.
USDCAD TECHS: Bearish Structure
- RES 4: 1.4452/4543 High Mar 13 / 4 and a bull trigger
- RES 3: 1.4415 High Apr 1
- RES 2: 1.4308 50-day EMA
- RES 1: 1.4242 High Apr 4
- PRICE: 1.4196 @ 17:10 BST Apr 4
- SUP 1: 1.4028 Low Apr 3
- SUP 2: 1.3986 Low Dec 2 ‘24
- SUP 3: 1.3944 61.8% retracement of Sep 25 ‘24 - Feb 3 bull run
- SUP 4: 1.3894 Low Nov 11 ‘24
USDCAD rallied Friday, but remains lower on the week after Thursday’s downleg. The move down has confirmed a clear reversal of the bull cycle between Sep 25 ‘24 and Feb 3. Price is through a key support at 1.4151, the Feb 14 low. This signals scope for an extension towards 1.3944, a Fibonacci retracement. On the upside, key short-term resistance is seen at 1.4308, the 50-day EMA.
CANADA DATA: Unexpected Jobs Contraction Boosts Implied April BOC Cut Chances
Canadian employment unexpectedly contracted in March, falling by the most since January 2022 at -32.6k (+10.0k expected, +1.1k prior) in a sign that the trade war with the US is spilling over increasingly into the "hard" data. The unemployment rate ticked up 0.1pp to 6.7%, in line with expectations and below the November 6.9% high, though unrounded it rose from 6.55% to 6.71% - the largest increase since November.
- The drop in employment was largely due to a 62.0k drop in full-time positions (after -19.7k, the 2nd straight drop), with part-time up for the 4th consecutive month at 29.5k (after 20.8k prior) - that mix is clearly indicative of hiring uncertainty among firms.
- The monthly full-time drop was the 2nd largest since the pandemic lows in the labour market (April 2020). Goods producing jobs fell by 12k (2nd consecutive decline), while services shed 21k (wholesale/retail trade and Information, culture and recreation led losses).
- The participation rate dipped 0.1pp to 65.2%.
- Wages were soft, dropping 0.2% M/M for the first drop since November, with the Y/Y rate slipping to 3.6% from 3.8% prior. The rise in permanent employees' wages of 3.5% Y/Y was well below the 4.1% expected (4.0% prior).
- Market-implied probability of an April BOC rate cut rose to as high as 68% after the data before settling the day at around 55%. That compares to 40% prior to Wednesday's US tariffs announcement.
