Markets Turn Defensive Ahead of April PCE Release

• Markets see April Core PCE at 0.28% m/m and 3.3% y/y, the highest yearly pace since Nov 2023.
• Rising oil prices feed into inflation data, keeping rate cut expectations under pressure.
• A hotter-than-expected PCE print could strengthen the dollar further but keep crypto slow.

Thursday’s PCE report is now the main macro event for global markets. Core PCE is expected at 0.28% month-over-month and 3.3% year-over-year.

On the other hand, Headline PCE estimates sit at 0.44% monthly and 3.8% annually, according to median forecasts shared by the Wall Street Journal’s Chief Economics Correspondent Nick Timiraos.

If the numbers land there, Core PCE annual inflation would hit its highest level since November 2023. The six-month annualized Core PCE rate would rise to 3.8%, the highest since June 2023.

Markets are entering the release with yields already elevated, oil prices rising again, and Fed cut expectations getting pushed further out.

Oil Spike Starts Showing Up in Inflation

March oil prices are now feeding directly into April inflation data. Analyst VirtualBacon said Core PCE tracks oil with roughly a two-month lag. Oil stayed elevated throughout March after Middle East tensions and supply fears hit energy markets.

This is now showing up across inflation forecasts. Barclays sees headline PCE rising 0.55% month-over-month, the highest estimate among major banks. Goldman Sachs expects Core PCE at 0.29%.

Bank of America sees 0.28%. Citi, Inflation Insights, and TD Securities are all near 0.26%. Most forecasts now expect Core PCE to hold at 3.3% annually.

The previous month already showed inflation reaccelerating. March headline PCE rose 0.66% month-over-month while annual inflation climbed to 3.5%. Core PCE came in at 0.29% monthly and 3.2% annually. April CPI, PPI, and import price data also came in hotter than expected.

Inflation is no longer isolated to energy. Food prices are rising as fertilizer and transport costs move higher. Airlines pushed ticket prices up again after fuel costs climbed. AI-related demand is also tightening chip supply globally, pushing hardware and memory prices higher.

Markets are now watching whether those pressures begin spreading deeper into services and consumer spending.

Bond Markets Already Repricing Fed Expectations

Treasury yields have moved sharply higher ahead of the release. The US 30-year Treasury yield recently touched 5.2%, its highest level since 2007. Traders have steadily reduced expectations for Fed cuts this year after inflation data stayed firm through April.

Reuters polling now shows most economists expect the Federal Reserve to hold rates steady through at least the third quarter. Bank of America said the Fed’s base case remains unchanged, with rates, while any potential rate cuts are now more likely next year instead of later this year.

Some desks have already started discussing whether another hike could return if inflation keeps accelerating through the summer. The market’s full-year inflation forecasts have now been revised higher for the third straight time.

Current estimates project PCE inflation at 3.9% in Q2, 3.7% in Q3, and 3.4% in Q4. The Fed still targets 2%.

Global positioning has already turned defensive before the release. The dollar index gained this week as traders moved into safe-haven assets following new military exchanges involving Iran. The yen strengthened while oil prices climbed again on supply disruption fears.

If Core PCE prints above 0.3%, markets will likely push Treasury yields even higher, and move Fed cuts further out. This would support the dollar while pressuring equities, emerging market currencies, and risk assets like crypto.

Related: US April CPI Report Sparks Fresh Fears of Fed Rate Hikes in 2026