EUR/USD struggled to capitalize on the overnight positive move to the 1.0575-1.0580 area. Aggressive Fed rate hike bets continued acting as a tailwind for the USD and capped gains. Investors eye the US ADP report, ISM PMI for some impetus ahead of the FOMC decision. The EUR/USD pair gained some positive traction on Tuesday amid modest US dollar weakness, though the intraday uptick lacked bullish conviction and ran out of steam near the 1.0575-1.0580 area. Given that the Fed's anticipated move to hike interest rates this week is already priced in, a positive risk tone undermined the safe-haven buck and extended support to the major. Traders, however, seemed reluctant to place aggressive bets and wait to see if the US central bank is ready to hike rates further to curb soaring inflation, even if the economy weakens. Hence, the market focus will remain glued to the outcome of a two-day FOMC monetary policy meeting. The Fed is scheduled to announce its decision later during the US session this Wednesday and is widely expected to raise interest rates by 50 bps. This would mark the first supersized rate increase since 2000 and the first back-to-back hike in 16 years. The US central bank could also announce plans to start shrining its near $9 trillion bond portfolio at a likely pace of $95 billion a month. Apart from this, comments by Fed Chair Jerome Powell will be scrutinized for fresh clues about the future pace of policy tightening. This will play a key role in influencing the near-term USD price dynamics and provide a fresh directional impetus to the EUR/USD pair. Heading into the key event risk, traders might take cues from the final Eurozone PMI prints. Meanwhile, the US economic docket features the release of the ADP report on private-sector employment and ISM Services PMI. That said, any immediate market reaction to the data is more likely to be short-lived and might do little to provide any meaningful impetus to the major. Technical outlook From a technical perspective, the recent range-bound price action witnessed over the past one week or so constitutes the formation of a rectangle on short-term charts. Against the backdrop of a sharp decline since late March, this could be categorized as a bearish consolidation phase. That said, it would still be prudent to wait for a convincing break and acceptance below the 1.0500 psychological mark before positioning for any further losses. The subsequent downfall has the potential to drag spot prices towards intermediate support near the 1.0450 area en-route the 1.0400 mark and the 2017 low, around the 1.0340 region. On the flip side, immediate resistance is pegged just ahead of the 1.0600 round figure, marking the top end of a near one-week-old trading band. Sustained strength beyond would suggest that the pair has formed a near-term bottom and trigger an aggressive short-covering move. The pair might then surpass the 1.0640-1.0650 resistance zone and aim to reclaim the 1.0700 round-figure mark. The recovery momentum could further get extended, though runs the risk of fizzling out near the previous YTD low, around the 1.0760-1.0755 area.

The US central bank is set to hike its policy rate by 50 basis points in May. The Fed is also expected to start shrinking its balance sheet by $95 billion per month from June. A 'buy the rumor sell the fact' market reaction could weigh on the dollar. The US Dollar Index (DXY), which tracks the dollar’s performance against a basket of six major currencies, rose nearly 5% in April fueled by the Fed’s apparent willingness to tighten its policy in an aggressive way. The FOMC is widely expected to hike its policy rate by 50 basis points (bps) following the May policy meeting and unveil its plan to start shrinking the balance sheet by $95 billion per month from June. Markets have been buying the rumor and the question on traders’ minds will be whether it will be the right time to sell the fact when the Fed announces its policy decisions on Thursday, May 4? Hawkish scenario According to the CME Group FedWatch Tool, markets are pricing a 94.5% probability of a total of 125 bps in the next two meetings. Additionally, the benchmark 10-year US Treasury bond yield is already up more than 50% since early March. Both of these market developments suggest that there isn’t much room for a hawkish surprise. Nevertheless, in case FOMC Chairman Jerome Powell draws attention to ‘front loading’ rate increases and doesn’t outright dismiss a 75 bps hike in the near future, the dollar could continue to gather strength. Additionally, it would also be dollar-positive if Powell downplays growth concerns and reiterates that they will stay focused on taming inflation, especially with the coronavirus-related lockdowns in China playing into supply chain issues. Dovish scenario The data published by the US Bureau of Economic Analysis showed that the Gross Domestic Product (GDP) decreased at an annual rate of 1.4% in the first quarter of 2022. Moreover, the annual Core Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred gauge of inflation, edged lower to 5.2% in March from 5.3% in February (revised from 5.4%).  The Fed could voice its concerns over the heightened uncertainty surrounding the economic outlook and reassure markets that they will turn patient and watch the developments before deciding on the pace of future rate hikes. Moreover, an optimistic tone on the inflation outlook is likely to be seen as a dovish shift in language and weigh on the dollar. Finally, the Fed’s quantitative tightening plan is expected to consist of a reduction of its holdings of US Treasury bonds and mortgage-backed securities by $60 billion and $35 billion, respectively, per month from June. If the Fed decides to shrink its balance sheet at a softer pace, the dollar is likely to come under heavy selling pressure. Neutral scenario The Fed might acknowledge the worsening economic outlook but argue that the economy and the labor market could handle aggressive rate hikes in the near term, which are necessary to battle inflation. A 50 bps hike in May, a total reduction of $95 billion per month in the Fed’s holdings from June and an open door to more 50 bps rate increases in the upcoming meetings should be more or less in line with what the markets have been pricing. Thus, the initial ‘buy the rumor sell the fact’ market reaction in the neutral scenario is likely to hurt the dollar and trigger a long-overdue correction.  Nonetheless, the policy divergence between the Fed and other major central banks should continue to support the greenback over the medium term.

China is the world's second-largest consumer and the world’s top importer of crude oil. In the face of adversity, is its economy likely to slow down? Crude oil prices ended slightly higher yesterday after a volatile session, caught between weakening demand in China and the prospect, closer than ever, of a European embargo on Russian oil imports. In the economic capital of Shanghai, where more than 25 million inhabitants have been locked up for a month, anyone who tests positive for coronavirus is sent to a quarantine center, even if they are asymptomatic. Apparently, China is sticking to this “zero-covid” policy that, ironically, has even become a new standard of freedom as similar restrictive models that run counter to individual freedoms were followed by some countries, including Australia, Canada, and New Zealand not so long ago. On the other hand, several countries, including Hungary, Denmark, France, the United States, and Britain, have recently announced they are moving their embassies back to Kyiv as the security situation in the Ukrainian capital improves. As Hungary will not support sanctions on Russian oil and gas shipments, Slovakia says it will seek exemption from any EU embargo on Russian oil. Therefore, the EU executive committee could spare both Slovakia and Hungary an embargo on buying Russian oil, taking into account the dependence of both countries on Russian crude. Speaking of Russian imports, it can also be noted that in 2021, Russia supplied Europeans with 30% of crude oil and 15% of petroleum products. Meanwhile, the thirteen members of the Organization of the Petroleum Exporting Countries (OPEC), led by Riyadh, and their ten partners, led by Moscow (OPEC+), are going to meet on Thursday (May 5) by videoconference to make any adjustments to their production. The market does not expect much from this meeting, as the current target of 400k barrels per day should be sustained. It’s despite the cartel’s struggling to pump such volumes, notably given the current political crisis in Libya – the producing country endowed with the most abundant reserves in Africa – which has seen its oil infrastructure blocked, where oil operations have been stopped since mid-April. Regarding the US dollar, the safe-heaven currency – still the king of international trade – remains strong, with a dixie hovering around its highs in a range marked between 102.750 and 103.930. The latter remains a strong resistance to break out before we see further moves towards the upside. Charts Figure 1 – US Dollar Currency Index (DXY) CFD (daily chart) Figure 2 – WTI Crude Oil (CLM22) Futures (June 2022 contract, daily chart) Figure 3 – RBOB Gasoline (RBM22) Futures (June 2022 contract, daily chart) Figure 4 – Henry Hub Natural Gas (NGM22) Futures (June 2022 contract, daily chart)

The Federal Reserve is very likely to raise rates today to 0.50%. There is a case to be made for the idea of raising rates immediately to 0.75%. Let’s get this ball rolling. The Federal Reserve is so incredibly behind the curve it is embarrassing to the entire nation. The days of easy money are over. Get over it everyone. Most market participants will be trying to cross the valley without a bridge believing that as the market is expecting a hike it is already priced in. So take advantage and buy into this. It is a psychological subset of always looking across the valley and buying the dip which has pervaded equity markets for the past two years with a high degree of intensity. Human beings decision make/function on the pillars of recency, frequency and intensity. So we have a perfect set up as the fundamental underpinnings fade away under the hoofs of all the bulls, read the entire herd, and they stand their ground only to find themselves in the midst of a nothing but a sea of potential sellers. As an economists of some years, can I tell you it has never looked as ugly as this. We are about to begin an historically intense and tectonic plate ripping interest rate hiking cycle by the Fed, and around the world. There will be no escape, and this first move should only be viewed as a baby step to what is coming. A flurry of rate hikes back toward near normal, probably way up at 3.25%. Coming late and attempting to fight inflation, but the nature of this inflation will see the Fed’s efforts being akin to pouring water on an oil fire. In case you did not know, this is not a good idea. The rate hikes designed belatedly will not work on this latest kind of inflation. The US consumer will be further squeezed and totally collapse. Hence the risk of a US recession joining that of China and Europe by year end. Who would in their right mind cross this valley without a bridge. It will only end in flames.

The Federal Reserve is very likely to raise rates today to 0.50%. There is a case to be made for the idea of raising rates immediately to 0.75%. Let’s get this ball rolling. The Federal Reserve is so incredibly behind the curve it is embarrassing to the entire nation. The days of easy money are over. Get over it everyone. Most market participants will be trying to cross the valley without a bridge believing that as the market is expecting a hike it is already priced in. So take advantage and buy into this. It is a psychological subset of always looking across the valley and buying the dip which has pervaded equity markets for the past two years with a high degree of intensity. Human beings decision make/function on the pillars of recency, frequency and intensity. So we have a perfect set up as the fundamental underpinnings fade away under the hoofs of all the bulls, read the entire herd, and they stand their ground only to find themselves in the midst of a nothing but a sea of potential sellers. As an economists of some years, can I tell you it has never looked as ugly as this. We are about to begin an historically intense and tectonic plate ripping interest rate hiking cycle by the Fed, and around the world. There will be no escape, and this first move should only be viewed as a baby step to what is coming. A flurry of rate hikes back toward near normal, probably way up at 3.25%. Coming late and attempting to fight inflation, but the nature of this inflation will see the Fed’s efforts being akin to pouring water on an oil fire. In case you did not know, this is not a good idea. The rate hikes designed belatedly will not work on this latest kind of inflation. The US consumer will be further squeezed and totally collapse. Hence the risk of a US recession joining that of China and Europe by year end. Who would in their right mind cross this valley without a bridge. It will only end in flames.

EUR/USD - 1.0520 Euro's decline to 1.0491 (New Yoyk) on Mon due to renewed usd's strength on gain in U.S. yields suggests correction from Thursday's 5-year bottom at 1.0472 has ended and re-test of this key sup is envisaged after consolidation, loss of downward momentum would limit weakness to 1.0435/40. Only above 1.0568 prolongs choppy swings above 1.0472 and may risk gain towards 1.0592 but reckon 1.0630/35 should cap upside. Data to be released on Tuesday New Zealand building permits, GDT price index, Australia RBA interest rate decision Japan Market Holiday, China Market Holiday. France budget balance, Germany unemployment rate, unemployment change, U.K. Markit manufacturing PMI, EU producer prices, unemployment rate. U.S. redbook, durable goods, durables ex-defense, factory orders, durables ex-transport, JOLTS job openings.

EUR/USD - 1.0520 Euro's decline to 1.0491 (New Yoyk) on Mon due to renewed usd's strength on gain in U.S. yields suggests correction from Thursday's 5-year bottom at 1.0472 has ended and re-test of this key sup is envisaged after consolidation, loss of downward momentum would limit weakness to 1.0435/40. Only above 1.0568 prolongs choppy swings above 1.0472 and may risk gain towards 1.0592 but reckon 1.0630/35 should cap upside. Data to be released on Tuesday New Zealand building permits, GDT price index, Australia RBA interest rate decision Japan Market Holiday, China Market Holiday. France budget balance, Germany unemployment rate, unemployment change, U.K. Markit manufacturing PMI, EU producer prices, unemployment rate. U.S. redbook, durable goods, durables ex-defense, factory orders, durables ex-transport, JOLTS job openings.

As UK markets get ready to go back to work on Tuesday after the May Day Bank Holiday, the FOMC meeting that concludes this Wednesday is the key focus for market watchers this week. The meeting concludes at 1900 BST, with the all-important press conference from Fed chair Powell at 1930 BST. The market is overwhelmingly priced for a 50bp rate hike from the Fed at this week’s meeting, which would be the first double rate hike for 22 years. What is more astonishing is that there is a 90% chance of a second 50 bp rate hike in June, and an 86% chance of a 50 bp hike to 200-225bps in July. By year end the market is expecting US interest rates to be in the 3% range, which is a huge move considering rates were essentially at 0% at the start of this year.  The Fed’s terminal rate  The hawkish shift in Fed policy is causing shock waves around the world as the terminal rate, which would mark the end of the current Fed hiking cycle, continues to move higher. A rough guide of where the market thinks the Fed’s terminal rate will be is the 5-year Treasury yield, this broke above 3% on Monday, as US and global bond yields surged higher. The US yield curve (10-year yield – 2-year yield) is dipping back towards inversion territory, which is considered a recession risk. However, at the start of this week, what is interesting about the US yield curve is that the entire curve is moving higher. This is unusual, since when equity risk aversion is high, as it has been recently, you usually see some areas of the US yield curve (such as 10-year Treasuries) act as haven assets. That is not the case this time, and the reason is that this economic cycle is different because inflation is out of the bottle. Everyone knows that this will be a difficult disease to treat. The medicine is also harsh: an extremely aggressive Fed tightening cycle, which is likely to hurt the economy.  The Fed and inflation: why the Fed needs to hike The Fed is likely to come up against some criticism for its aggressive hiking cycle on Wednesday, especially after the weak Q1 GDP report for the US. However, the Fed is likely to say that it will look through one quarter of bad growth, as it continues to believe that consumer spending is resilient on the back of strong wage growth for Q1. The BLS employment cost index for Q1 rose to a more than 22-year high. This is a clear sign that as we progress through 2022, the global inflation problem is more than just a supply chain issue. Added to this, labour market data for April is expected to show 390k jobs were created by the US economy last month. This suggests a robust economy and could also propagate further wage growth down the line. Thus, when people say that the Fed can’t target inflation because it’s caused by outside pressures and the war in Ukraine, this is not wholly true. If wage pressures are surging in the US, then the Fed can try to put the brakes on the US economy to make sure these wage increases are nipped in the bud before they get out of control. Thus, at this stage, we cannot guarantee that the US terminal rate will not rise above 3% when annualised wage growth is the highest in two decades. The surge in the BLS’s employment cost index, suggests that price rises are becoming embedded in the economy, and this is the reason why it's hard to find any doves left at the Fed.  QT is coming, but what will it look like?  While the market is fully priced for a 50 bp rate increase this week, the FOMC statement and press conference will be more interesting from the perspective of the Fed’s enormous $9trillion balance sheet. We expect a formal announcement about the Fed’s plans to reduce the size of this monstrosity, and we could get confirmation that it will sell assets to the tune of $98bn per month in the coming months. This would be a much larger pace of monetary tightening compared with 2017, although the Fed could start small with a $50bn shrinking of its balance sheet this month. Overall, the Fed is embarking on a supersized tightening cycle using both interest rates and QT in unison. This is something that the market has not had to deal with before, and it is causing severe risk aversion in equity markets. Will traders follow Warren Buffet and buy when there is blood on the streets?  There was a risk off tone to markets at the start of the week as the Fed-led shift in...

AUD/USD Current Price: 0.7042 The contracting Chinese economy added to global headwinds and weighed on the aussie. The Reserve Bank of Australia is set to raise the cash rate for the first time in over a decade. AUD/USD trades near the critical 0.7000 threshold with a bearish bias. The Australian Dollar was among the weakest greenback’s rivals on Monday, with AUD/USD trading in the 0.7030 price zone at the end of the American session. The American currency appreciated on the back of risk aversion, triggered by poor Chinese data released over the weekend, later fueled by persistent tensions in Europe. According to official figures, the Chinese economy suffered a major setback in April, mostly due to the latest coronavirus outbreak in the country. The NBS Manufacturing PMI contracted to 475, while the Non-Manufacturing PMI plunged to 41.9. Australian data released at the beginning of the week was generally encouraging but fell short of boosting the local currency. The S&P Global Manufacturing PMI beat expectations by reaching 58.8 in April, while the official AIG index improved from 55.7 to 58.5 in the same month. Gold prices plummeted despite a generalized dismal mood, adding pressure on the AUD. The bright metal traded as low as $1,854.37 a troy ounce before recovering some ground ahead of the close. The focus now shifts to the Reserve Bank of Australia, set to announce its latest monetary policy decision. The central bank is expected to raise rates for the first time in over a decade as inflationary pressures reach Australian shores. Still, the RBA has been quite behind the curve, maintaining a “patient” stance until a couple of months ago. Policymakers gave up on evidence that the country is not immune to global bottlenecks and higher energy prices that have put pressure on prices. Market participants are anticipating a between 15-25 bps hike, which may provide temporal support to the local currency. AUD/USD short-term technical outlook The AUD/USD pair keeps approaching the year’s low posted in January at 0.6966. The daily chart shows technical indicators maintaining their bearish slopes, despite being in extreme oversold territory, as the pair develops over 200 pips below its 100 and 200 SMAs. The 20 SMA, in the meantime, gains bearish traction above the longer ones. A corrective advance is possible, but the pair needs to regain at least the 0.7230 to have the potential strength for a bullish reversal. The pair is also bearish in the near term, and according to the 4-hour chart. The 20 SMA heads firmly lower, providing an intraday dynamic resistance at around 0.7090, while the longer ones offer bearish slopes far above the shorter one. Technical indicators, in the meantime, remain within negative levels, the Momentum aiming higher within range but the RSI stable at around 35. Support levels: 0.7030 0.6995 0.6960 Resistance levels: 0.7050 0.7090 0.7135 View Live Chart for the AUD/USD

The Reserve Bank of Australia is seen raising OCR by 15 bps to 0.25%. Hotter Australian inflation paves the way for earlier RBA rate lift-off. AUD/USD could see more pain if the RBA decides to stand pat ahead of the election. The Reserve Bank of Australia (RBA) is on course to deliver its first rate hike in 11 years, as it seeks to keep inflation in check, ignoring the upcoming federal election on May 21. The policy decision will be announced this Tuesday, May 3, at 0430 GMT.  Will the expected rate hike by the Australian central bank be able to save AUD bulls? RBA can’t miss the inflation surge The Australian central bank is widely expected to raise the Official Cash Rate (OCR) by 15 basis points (bps) to 0.25% from a record low of 0.10% at its May meeting. So far, the RBA has been behind the curve, as most major central banks have embarked upon its tightening journey to combat raging inflation. With Australia’s annualized Q1 2022 Consumer Price Index (CPI) at a 20-year high of 5.1%, however, it has set a clear path for the central bank to kick off its rate hike cycle earlier than previously thought. The latest Reuters poll of economists showed last week that a majority of them predicted the RBA to hike the key rate to 0.25% in May. “Median forecasts showed the benchmark rate would rise to 1.00% by end-September and to 1.50% by year-end, double the 0.75% predicted in the previous survey,” per Reuters. Last month, the RBA April meeting’s minutes revealed that a further increase in inflation is expected, while 'the evidence that inflation is sustainably within the 2-3% target range' is the prerequisite for an interest rate rise. Ahead of the country’s quarterly inflation release, markets thought that the RBA might not act until the federal election, making the case for a June rate hike inevitable. But the uptick in inflation has compelled the central bank to take the lead from its global peers. Although inflationary pressures are stemming from the external environment, in the face of the Russia-Ukraine war and China’s covid lockdowns affecting the global supply chain, the RBA has to act now to keep a check on higher inflation. The economy remains in better shape to cope with higher borrowing costs, with a strong trade surplus and a tighter labor market. The RBA, however, needs to act with caution to avoid a hard landing, as the economy puts behind the post-pandemic recovery. Trading AUD/USD on the RBA decision AUD/USD remains heavily battered near four-month lows just above 0.7000, as the hawkish Fed expectations, China’s economic slowdown concerns and pre-RBA anxiety keep the AUD bulls at bay. As mentioned above, a 15 bps rate hike is well priced-in by the market. Therefore, the aussie will need more than the given rate increase to stage any meaningful recovery beyond 0.7100. AUD bulls could receive the much-needed boost if the RBA front-loads rate hike prospects for this year, affirming markets’ expectations of 1.50% by end-2022. Should the bank stand pat or refrain from committing any big plans, AUD/USD could take a massive hit, with a test of the January lows of 0.6965 on the table. The reaction in the AUD/USD pair could also be influenced by the risk tone prevalent at the time of the central bank decision. 

Tech earnings disappointing with Apple the standout and Facebook a relief. Amazon was poor and Apple spoke worryingly on the conference call. US GDP shocked to the downside and yields and oil are back on the ascent. Equities are back at precarious levels as we approach the end of the week and the end of the month. Tech earnings season is now more or less done and dusted and the report card looks like its detention. Facebook (FB) rallied 15% but really those numbers were not great, it was just a relief rally that they were not as bad as last time. Amazon (AMZN) had a shocker which really we should have all seen coming as it became a pandemic stock. Now we all go back out, malls are packed and warehouses are quiet. Google (GOOGL) was also a bit of a disappointment. So we come to the good news if there is any on a day when the Nasdaq is staring at -4% at the time of writing. Microsoft (MSFT) and Apple (AAPL) beat the street and produced solid earnings. But even Apple managed to slap bulls in the face on the conference call when it spoke about significant headwinds from supply chain issues. Apple turned around 4%. That set up Friday's fright. With the Fed in a blackout at least they cannot add to it with more of their recent hawkishness. But investors are running scared. We will naturally get some relief or bear market rallies but we are in a bear market make no mistake about it. Deutsche Bank moved to pencil in a nailed-on US recession in 2023 and their Chief Economist seemed incredulous that the Fed is even contemplating a soft landing. As he pointed out it has never been achieved before so why is it different this time. It never is different this time, history repeats itself.  Elon Musk remained in the news as his deal to take Twitter (TWTR) drags on. Some interesting news hit the tape as he has had to sell a decent chunk of Tesla (TSLA) to stump up the cash for the deal and put down quite a bit more as collateral. This could get very ugly if things turn lower for Tesla. There is a decent chance the deal doesn't make it across the finish line or else he will have to sell more Tesla stock if the deal does go through and this bear market really takes hold. Twitter also got a put down from Donald Trump who said he would not return to it and instead popped up on Truth Social on Thursday evening.  DWAC stock naturally soared. So is there any good news out there? Well curiously yes. It is always important at times like these when bearish thoughts are rampant to try and take a contrarian view and see if it holds. That is where the best trades come from. So let's get to it, this is getting me down already and it's the weekend! Refinitiv Lipper Alpha shows us that as of April 29, 275 companies from the S&P 500 have reported earnings and 80.4% of them have beaten estimates. Doesn't feel like it but there you have it. The long-term average is 66%. Q1 2022 revenue growth is running at 12.5% and even excluding energy that is 9.3%.  So why the long face? Source: American Association of Individual Investors, AAII.com Source: CNN.com Both sentiment metrics are showing extremely bearish readings with the AAII, in particular, a noted low. The CNN Fear and Greed has moved from 38 to 29 in the space of one week. The put/call ratio has also spiked, so we're all buying puts now, hmm, looks like the perfect setup for a counter-rally fairly soon then! Put/call ratio CBOE Volatility has naturally spiked as fear has, so this makes all of you rushing into buying puts, paying the top of the recent market. Below shows VIX and VXN (Nasdaq volatility) versus MOVE which is bond market volatility. That has notably quietened so could see some stability for yields going forward. VIX, VXN and MOVE For April, the Energy (XLE) sector has not been the top-performing sector despite what many of you may think. That crown goes to, drum roll, XLP Consumer Staples, the green line in our chart above. XLE (Energy-blue line) is second while unsurprisingly XLK (tech orange line) is the worst-performing sector for the month. SPY forecast Still have massive support at $415 a potential triple bottom and then $410 the Ukraine invasion low. There is a volume gap from $405 to $395 so that could get a trigger if we move below $410. $400 is likely to see stops placed just below the level as well, we all love round numbers don't we! That move would likely flush...

Summary Consumer income is growing, but not as fast as inflation. Consumers had to dip into savings to pull it off, but not only did real personal expenditures rise in March, revisions listed real February spending into positive territory as well. Rainy day savings won't last forever, but for now, at least the desire to resume service-sector activity is more powerful than inflation. Experiences over stuff drives spending gains in March In the wake of yesterday's negative GDP print, the additional detail from today's March personal income and spending report point to consumer spending growth that is outpacing the fastest inflation in decades. Revisions to prior months' sales figures now confirm that despite initial reports that inflation outpaced spending in February, the opposite is true: real personal spending was positive in each of the first three months in the first quarter. Admittedly a downward revision to January keeps the level only slightly higher. Still, real PCE rose 0.2% in March, on top of upward revision to February that brought the monthly change to a +0.1% (-0.4% previously). For months, we have described our expectations for consumer spending to continue to be driven by service outlays and that some of the strength there might come at the cost of slower growth or outright declines in goods spending. That was certainly the case for March. Real durables outlays slipped 0.9% and non-durables outlays fell 0.3%. The much larger services category grew 0.6% after adjusting for inflation; that carried the day and allowed overall real PCE to finish the month up 0.2%. Gains were widespread across services categories and led by “other” services (notably international travel) and discretionary services categories (transportation, recreation & food services), where real spending rose 1.1% after a 2.5% gain in February (chart). Download The Full Economic Insights