Trade Desk Thoughts - Core PCE Price Index

Core PCE Price Index (July) Actual 0.3%, Expected 0.3%, Previous 0.3%

Release Explanation: The rate of Inflation experienced by Consumers in what they spend. It measures price changes in Consumer goods and services, and consists of the actual and imputed expenditures of households. It includes data pertaining to Durables, non-Durables, and Services. It is essentially a measure of goods and services targeted towards individuals and consumed by individuals, therefore it is very important in assessing the sentiment of the Consumer, especially in a Service based economy. This is a very important release. The impact from this release affects the CPI, Retail Sales, Housing and Consumer Confidence numbers. This is released at the same time as Personal Spending and Personal Income reports, and all three complete a very strong picture of consumer sentiment. Named by the Federal Reserve as their preferred measure of near-term Inflation. Variables are Core PCE numbers that strip out food and energy, and the PCE Deflator. A currency will be greatly impacted by this report as it reveals the strength of the public in their ability, or desire, to spend or save, and therefore how strong economic growth will be going forward.

Trade Desk Thoughts: Core PCE increased 2.4% in the year to July, the most in 17 years. Personal Spending rose 0.2% while incomes fell 0.7% as the effects of the tax rebates faded. Real personal spending (adjusted for inflation), declined 0.4%, the most in four years. When adjusted for price changes, purchases of durable goods declined by 1.6%. Price-adjusted spending on non-durable goods decreased 0.9%, while services were unchanged.

"Spending is weak for two reasons," said Matthew Carniol, chief currency strategist at TheLFB-forex.com. "First, incomes are decreasing as the effects from the tax rebates fade. Second, because the job and housing sectors continue to decline, expectations for future incomes are weakening, a trend that is likely to continue at least through the end of the year."

Forex Technical Reaction: The dollar weakened against the euro after the reports as oil continued to advance (1.1%, $116.82 per barrel) on speculation Tropical Storm Gustav might damage production facilities in the Gulf of Mexico.

Written by TheLFB Trade Team, © 2007-2008 LFB Services, LLC. All rights reserved. http://www.TheLFB-Forex.com

TheLFB Risk Disclaimer can be found at http://www.thelfb-forex.com/content.aspx?id=174.

The Copying, Broadcast, Republication or Redistribution of TheLFB Content is Expressly Prohibited Without the Prior Written Consent of LFB Services, LLC.