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July PCE and more ?3

19:45 29-Aug-25

An 11 judge federal appeals court has just upheld the earlier USCIT ruling striking down Trump's reciprocal tariffs.  However, those will remain in place until at least mid-October so that the SCotUS can decide the matter, as predicted back then.  American equity futures remain negative, and it's unclear how much this development is being taken into account.  Although the initial ruling garnered a positive market response, this time around could be markedly different.  That's because of dire warnings from the administration, which essentially confirm what this service has already written about tariffs: they are merely a response to underlying economic problems which this service anticipated coming to head by this point almost seven years ago, and that pushing ahead without legal certainty only makes the matter worse.

PCE numbers were all in line with expectations with the headline and core at +0.2% and +0.3%, respectively.  Incomes rose less than spending at 0.4% and 0.5%, which is not good but unlikely to affect indexes.  As with last month, the first pair do not yet include full tariff effects, but spending may be indicative of related pull forward, and therefore inflation expectations.  Yesterday's positive GDP revision certainly seemed to provide evidence of that, even though the data is too dated be fundamental to indexes.

Those are negative this morning.  One factor may be a headline that Alibaba has developed chips using domestic Chinese production as a replacement for Nividia's products, but this should be ignored for the short to medium term.  The main reason is lagging production capacity in China, but suitability for training versus inference tasks is also a limiting factor.  Another possible factor is the end of the de minimis tariff exemption today.

I will be looking for a mid-day market reaction to Cook's hearing, scheduled to begin at 10AM, for a preliminary injunction against Trump's effort to remove her from the FOMC.

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