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

European stocks have outpaced the US today, moving higher as markets look towards more support for the Chinese economy. European markets rally on hopes of China stimulus “A gulf has opened between Europe and the US, as the former rally while the latter drops back. US stocks enjoyed such a strong day yesterday that some caution was inevitable, while the mixed picture following US tech earnings and the contraction in US GDP isn’t helping sentiment on Wall Street. But higher commodity prices have helped stabilise industrial European stocks, and crucially the magic promise of Chinese stimulus has appeared, pushing up commodity prices and giving stocks across the continent a lift.” Oil prices extend gains “A third day of gains for oil prices comes as talk of a European ban on Russian oil and gas imports steps up a gear. In addition, US consumption has taken a leg higher, assuaging some concerns about a slump in demand in response to higher prices. But next week’s FOMC meeting might prompt some nerves to creep back in again, either as the Fed signals its concerns about growth, or if the dollar bounces again on a more hawkish meeting.”

A notable recovery in 2021  Real estate market activity in Spain recovered spectacularly in 2021, after collapsing in 2020 due to the lockdown measures introduced to tackle the Covid-19 epidemic. Nearly 670,000 real estate transactions took place last year, a level not seen since 20071 (see chart 1). According to INE, housing prices rose by 3.7% in 2021, continuing the strong pace of the last six years (average yearly increase of 4.9% between 2015 and 2020). Although housing prices are still 10% below their peak in summer 2007, price growth is accelerating. Figures from Tinsa show that this trend continued in the first quarter of 2022, with a 6.8% year-on-year increase in March. This indicator is well correlated with the INE quarterly index. However, these figures hide significant differences between regions. In the Madrid area and tourist and/or densely populated regions (Balearic Islands, Melilla, Ceuta), real estate prices have recorded rapid growth since 2015; indeed prices in some regions are now higher than they were in 2007/2008. Conversely, in rural and more sparsely populated regions (Extremadura, Castile and León, Navarre, Aragon), prices are fluctuating at least 20% below their levels of fifteen years ago. This said, the number of real estate transactions in most of these areas has also started to rise, suggesting that price increases could be more rapid this year. Download The Full EcoFlash

Summary In yet another sign the labor market continues to tighten rapidly, the Employment CostIndex rose a record 1.4% in Q1, vastly exceeding expectations. The pickup comes despite increasing availability of labor supply, signaling that cost pressures from the tight labor market will not be easily stomped out. The FOMC is likely to stay on an increasingly hawkish path as a result, given labor costs represent a more persistent threat to the inflation outlook. Wake up call for the Fed The battle for talent escalated in the first quarter, with the Employment Cost Index jumping 1.4%–themost in the series' 21-year history and above expectations for a 1.1% gain. The pickup comes despite the increasing availability of labor, signaling that inflationary pressures from the tight labor market will not be easily stomped out. As a reminder, the ECI is the preferred measure of labor costs among Fed policymakers. Unlike the more timely average hourly earnings in the monthly nonfarm payroll report, the ECI controls for compositional shifts in the workforce, which have been unusually large over the past two years. It also includes benefits, which account for 31% of compensation, therefore giving a more complete picture of the costs employers are facing in today's competitive hiring environment. The surprisingly strong ECI print for Q3, released in October 2021, was the catalyst for the FOMC speeding up its tapering plans according to Chair Powell at the December FOMC meeting. The first quarter ECI print is likely to stir more unease among Fed officials and keep the FOMC on an increasingly hawkish path despite GDP growth contracting in the same quarter. Download The Full Economic Insights

The British pound bounced back as data showed that home prices continued rising. According to Nationwide, the average house price in the UK jumped to £267,600 in April as demand continued rising. Prices rose by £2,000 on a month-on-month basis or 12.1% on a year-on-year basis. However, the increase was slower than most analysts were expecting. Housing demand has risen while inventories has been subdued. Therefore, there are concerns about whether this demand will continue as the Bank of England hikes interest rates. In a note, an analyst at Capital Economics said that home prices will drop by about 3% in 2021 and 1.8% in 2024. The euro rose against the US dollar even after data showed that many European economies were slowing. In France, data revealed that the economy stagnated in the first quarter while inflation jumped by 5.4% in April. In Italy and Spain, their economics contracted while in Germany, the economy expanded by just 0.2%. The statistics agencies attributed this performance to the soaring prices, which helped to slow consumer and business demand. Meanwhile, according to Eurostat, preliminary data revealed that inflation rose from 7.4% to 7.5% while core CPI rose from 2.9% to 3.5%. European stocks were deeply in the green as the earnings season continued. The Stoxx 50, DAX, and CAC 40 indices rose by more than 1% while the FTSE 100 index rose by more than 0.40%. In the UK, AstraZeneca said that its sales jumped by 60% in Q1 as demand for its Covid-19 vaccine and rare disease medicines rose. Its sales rose to $11.4 billion as revenue from its oncology business rose to $3.6 billion. Reckit Benckiser, the consumer products company, said that its revenue rose to £3.4 billion as it hiked prices by over 5%. NatWest, formerly known as Royal Bank of Scotland, said thar its revenue rose by 17% to £3 billion because of mortgage growth and higher interest rates. GBP/USD The GBPUSD pair rose as investors rushed to buy the dip. It rose to a high of 1.2560, which was the highest point since Wednesday. It moved above the middle line of the Bollinger Bands. At the same time, the Relative Strength Index (RSI) moved above the oversold level of 30. The Stochastic Oscillator moved to the overbought level. The pair will likely keep rising as bulls target the upper side of the Bollinger Bands. EUR/USD The EURUSD pair also rose as the strength of the US dollar faded. It moved to a high of 1.0575, which was higher than this week’s low of 1.0465. It moved above the middle line of the Bollinger Bands while the Relative Strength Index moved above the oversold level. The pair is also nearing the overbought level while the Average Directional Index (ADX) has started dropping. Therefore, it will likely keep falling since this is the last trading day of the month. XAU/USD The XAUUSD pair rose sharply after China announced a new stimulus. The pair rose to a high of 1,916, which was the highest level since April 26th. It also moved above the important resistance level at 1,911 and is along the upper side of the Bollinger Bands. The Stochastic Oscillator moved above the overbought level while the Relative Strength Index (RSI) moved above 50. The pair will likely keep rising.

In today’s Traders Edge Market Briefing, Tomasz found these amazing setups that we thought you’d find interesting.