Concerns on U.S. growth prospects spook equity investors
September Fed Funds Rate cut ‘on the table’
Last week saw volatility for global equity indices, as investors became concerned the U.S. economy might not see the ‘soft landing’ the Federal Reserve has been hoping to achieve. This caused markets to fall earlier in the week. These fears have their roots from a key employment report released at the start of the month – non-farm payrolls – which came in weaker than expected for July. Also, last week saw the final version of the U.S. PMI index for July, with the figure revised lower from 55.0 in the first estimate to 54.3. However, upbeat data on the number of people registering as unemployed helped steady nerves, causing markets to rally on Thursday. In August, many financial firms’ decision makers are away on taking advantage of the last few weeks of Summer, so less experienced staff are having to make calls. We will be watching to see whether the volatility continues into September.
The U.S. trade deficit narrowed in June to $73 billion, compared to $75 billion in May, thanks to exports growing faster than imports. The stronger export figures are impressive given global trade volumes remain weak and the dollar is strong. In part, exports were driven by rising overseas sales of civilian aircraft, which is good news for regions and metros associated with the aerospace sector. From a real estate perspective, strengthening flows of trade could point to resilient leasing demand for the logistics and industrial markets, particularly near the nation’s major ports.
This week sees two different measures of inflation released, which the financial markets will be closely watching given rising expectations a Fed Funds Rate cut is coming in September. Producer Price Index (PPI) inflation, often referred to as factory gate inflation, is out on Tuesday, giving an indication of the price pressures faced by industry. Then the consumer-facing CPI inflation index is released the following day. Thursday will see retail sales figures published, providing a further insight into the strength of the consumer side of the economy.
Things to watch for this week
Tuesday, August 13
PPI Inflation, y-on-y, July
Previous: 2.6%
Forecast: 2.6%
While factory gate inflation has picked up slightly in recent months, we see it levelling out now in the face of high interest rates and easing supply chain price pressures across the globe.
Wednesday, August 14
CPI Inflation, y-on-y, July
Previous: 3.0%
Forecast: 2.9%
With interest rates high, maintaining pressure on the consumer, we are forecasting CPI inflation to decelerate further.
Thursday, August 15
Retail Sales, m-o-m, July
Previous: 0.0%
Forecast: 0.0%
Retail sales growth was flat in June and has been disappointing for some time now. We are predicting another month of no growth given conditions remain difficult for the consumer.