What’s Ahead: PCE and consumer sentiment are the focus on Friday as the markets head into the long Labor Day weekend. Remember the PCE price data are the Fed’s favored inflation indicators. The inflation expectations metrics from the sentiment survey have also been important for policymakers.
With inflation now a little less important for the policy outlook as attention has shifted to employment, any upside surprises won’t deter the FOMC from cutting rates on September 18 but would support a smaller -25 bp reduction versus -50 bps. We expect gains of 0.1% for both the headline and core rates in July after respective increases of 0.1% and 0.2% in June. Results in line with our forecasts would see the y/y rates holding unchanged at 2.5% for the headline and 2.6% for the core. But there are upside risks.
The Bloomberg medians show monthly gains of 0.2% for headline and core, and 12-month rates of 2.5% y/y and 2.7% y/y. Such results should not prevent the FOMC from easing next month, however, as Powell all but promised it. But hotter numbers could impact market expectations on the rate trajectory. As for consumer sentiment we expect the final print for August to be unchanged from the preliminary 67.8. Of more importance will be the price indicators that showed the 1-year rate holding at 2.9% and the 5-10 year at 3.0%.
Asia & European Sessions:
- Global stocks are approaching a 4th consecutive month of gains, driven by optimism for a soft landing in the US economy and the possibility of lower interest rates.
- Wall Street closed mixed with the indication of a still resilient consumer and economy boosting the Dow 0.59% to a fresh record peak at 41,335, a 25th record of 2024. The NASDAQ erased strong early gains and finished with a -0.23% decline. The S&P 500 was flat.
Financial Markets Performance:
- The USDindex climbed to 101.50. We have seen some dip buying and front running of month-end demand, helped also by the more tempered view of the Fed.
- The Yuan has climbed to its highest level in over a year, driven by signs of corporate buying and a weakening US Dollar. Like other Asian currencies, the yuan has benefited from growing expectations that the Fed will soon cut interest rates, prompting traders to sell Dollars in favor of local currencies. Speculation is also rising that Chinese exporters, holding large reserves of foreign currency, will sell more dollars amid this shift in market sentiment.
- Oil was up 1.8% to $75.91 per barrel on the improved growth outlook and Libyan supply worries. The revised US data revealed stronger-than-expected economic growth in the Q2, lifted market sentiment. At the same time, Libya’s oil production faces further decline amid escalating unrest, having already halved this week. Despite this, the global crude benchmark is on track for its first consecutive monthly loss of the year. Both Goldman Sachs and Morgan Stanley recently lowered their price forecasts, citing weaker-than-anticipated demand from China, the world’s largest oil importer. Additionally, the possibility of OPEC+ increasing supply in the fourth quarter is adding to market uncertainty.
- Gold edged 0.67% higher to $2521.46 per ounce.
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Andria Pichidi
Market Analyst
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