Market Drivers – US Session – 25 February

Markets stayed relatively quiet early Friday and the DXY extends its corrective slide as investors braced for another turbulent day.

Economic Data

Wall Street stocks were positively driven by economic data, which highlighted the rise of durable goods orders in the United States to double the level of market expectations.

Orders for American durable goods rose by 1.6% last January, compared with a previous reading of 1.2%, which exceeded market expectations by 0.8%.

The Dow Jones industrial index rose 33,650 points gaining 440 points, or 1.4%. The Standard & Poor’s 500 index rose to 4335 points after adding 44 points, or 1.1%, and the Nasdaq’s gains for heavy technology industries recorded 62 points or 0.5%.

US consumer spending increased more than expected in January, offering the economy a strong boost at the start of the first quarter. Consumer spending, which accounts for more than two-thirds of US economic activity, surged 2.1% last month after falling 0.8% in December.

Personal income was unchanged last month as a 0.5% increase in wages was offset by a decrease in government social benefits. Economists shrugged off the drop in the saving rate, which fell to 6.4%, the lowest since December 2013, from 8.2% in December.

Households will adjust to the reduced tax credit and the saving rate will return to above 7%. The personal consumption expenditures (PCE) price index increased 0.6% in January after rising 0.5% in December. The core PCE price index shot up 5.2% year-on-year in January, the biggest rise since April 1983. The core PCE price index increased 4.9% in the 12 months through December.

These core capital goods orders rose 0.4% in December. Shipments of core capital goods accelerated 1.9% after increasing 1.6% in December.

Other Developments
With inflation well above the Fed’s 2% target, households’ buying power is being reduced. Income at the disposal of households after accounting for inflation fell 0.5%.

The US Federal Reserve on Friday released its semiannual Monetary Policy Report (MPR), which it normally does one week ahead of Fed Chair Jerome Powell’s semiannual testimony before the US Congress. The report reiterated the Fed’s policy guidance that it will soon be appropriate to raise the target range for the Federal Funds rate.

The US economy got a lift from another report from the Commerce Department showing orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, jumped 0.9% last month, beating economists’ expectations for a 0.5% gain.

Fed’s report reiterated that recent geopolitical tensions related to the Russia–Ukraine situation are a source of uncertainty in global financial and commodity markets.

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