U.S. PCE, European inflation and "de minimis" exemption - what’s moving markets

Adam

Summary:

Markets are cautious ahead of U.S. PCE inflation data, with futures slightly lower. Europe also awaits inflation prints. Trump ended the “de minimis” exemption, raising import costs. Oil faces weekly gains but monthly losses.

U.S. stock futures slipped slightly lower Friday ahead of the release of the Federal Reserve’s most-watched inflation gauge. There are also inflation numbers in Europe to digest, while the Trump administration has ended its "de minimis" exemption.

Key inflation release due

Investors will focus on the release of the U.S. personal consumption expenditures (PCE) price index, the Federal Reserve’s preferred inflation gauge, later in the session, as they seek more clarity on the path for interest rates for the rest of the year.

Expectations are for the core PCE to have stayed steady at 0.3% on a monthly basis, putting the annual rate at 2.9%.

However, there is the risk the data may reveal more evidence of U.S. President Donald Trump’s sweeping tariffs filtering into consumer prices, following a recent upside surprise in producer inflation.

The Fed lowered its policy rate by a full percentage point last year, but has held rates steady this year, citing worries that Trump’s higher tariffs could reignite inflation that is still running above the Fed’s 2% goal.

Expectations are rife this stance is set to end in September with a 25-basis-point cut, though what happens after that remains uncertain.

Fed Governor Christopher Waller said on Thursday he wants to start cutting rates next month and "fully expects" more rate cuts to follow to bring the Fed’s policy rate closer to a neutral setting.

Waller and Fed Governor Michelle Bowman both dissented from the Fed’s decision to keep short-term borrowing costs unchanged in July.

Both were appointed by Trump and are said to be under consideration as possible successors to Fed Chair Jerome Powell, amid market concerns of the politicisation of the central bank.

Trump earlier this week announced he was firing Fed Governor Lisa Cook over what he said was possible mortgage fraud, a move Cook says is illegal and is suing to stop.

U.S. futures slip lower

U.S. stock futures slipped marginally lower, but remained on course for healthy monthly gains ahead of the release of important inflation data.

At 03:20 ET (07:20 GMT), the S&P 500 futures traded 5 points, or 0.1%, lower Nasdaq 100 futures dropped 35 points, or 0.1%, and Dow futures fell 80 points, or 0.2%.

The major indices enjoyed a winning session on Thursday, with the S&P 500 closing up 0.3% at an all-time high. The NASDAQ Composite added 0.5%, while the Dow Jones Industrial Average ended the day up about 0.2%, also a new record.

They are also all on track for solid monthly gains, with the 30-stock Dow having logged a 3.4% advance so far in August. The S&P 500 is up 2.6% so far this month, and the tech-heavy Nasdaq has gained 2.8%.

Investors will focus on key inflation data later in the session, with the release of the July personal consumption expenditures index [see above].

Investors will also digest results from the likes of Ulta Beauty, Ambarella and Affirm Holdings.

Trump administration ends "de minimis" exemption

The Trump administration on Friday ended U.S. duty-free imports of packages worth less than $800, the so-called "de minimis" exemption that has fueled a surge in shipments from global sellers to U.S. consumers.

President Donald Trump announced on July 30 the repeal of duty-free treatment of parcels from every country effective a month later, saying the exemption has enabled traffickers to easily send parcels containing fentanyl into the country.

However, the de minimis exemption enabled a cross-border ecommerce surge, with 1.36 billion shipments arriving under de minimis with a declared value of $64.6 billion in fiscal 2024.

According to U.S. government data, about 73% of de minimis packages entering the U.S. originated from China in 2024.

U.S. consumers are now likely to face higher prices, with the tariffs makng shipments to the U.S. from overseas retailers more expensive, unless the sellers absorb the tariff costs.

ECB looks for inflation clues

There are also important inflation numbers due in Europe during the session, with preliminary French, Spanish and German consumer prices in the spotlight.

The European Central Bank left its key rate at 2% at its July meeting, and data since then has confirmed the eurozone economy was holding up while inflation hovered at the ECB’s 2% target.

ECB policymakers are widely expected to hold rates unchanged again in September, but the minutes from the July meeting showed that they were divided on whether inflation was more likely to come in higher or lower moving forward, a foretaste of a debate set to come to a head in the coming months.

A key element generating uncertainty is the impact of the U.S. tariffs on the European economies, after the Trump administration announced the imposition of 15% duties on EU goods imports.

The ECB policymakers acknowledged this uncertainty "would remain a key feature of the global and euro area economic outlook for some time to come", but they disagreed on how big its impact would be on the economy.

Crude set for weekly gain, monthly loss

Oil prices slipped lower, but are set for a weekly gain, as traders weigh uncertainty over Russian supply as well as the proximity to the end of the important U.S. summer driving season.

At 03:20 ET, Brent futures slipped 0.7% to $67.54 a barrel, and U.S. West Texas Intermediate crude futures fell 0.7% to $64.12 a barrel.

Both contracts are on course for weekly gains of just under 1%, with prices gaining after Ukrainian attacks on Russian oil export terminals raised doubts about Russian supply, while the lack of a meeting between Russian President Vladimir Putin and Ukrainian President Volodymyr Zelensky raised doubts about the peace process.

However, the end of the U.S. summer driving demand period with the Labor Day holiday on Monday have weighed on prices.

On a broader scale, both contracts are set for monthly losses of over 6%, dragged by steady production hikes by the Organization of the Petroleum Exporting Countries.

Source: Investing

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