In what will be a thin week for key data, the US Q2 GDP print (Thu) and deluge of corporate earnings will give the market plenty to digest, particularly noteworthy given the Fed blackout period. The US presidential race will also keep markets on their toes amid President Joe Biden’s decision to exit, and honour Kamala Harris. Later today we have the Chicago Fed National Activity Index. Eurozone consumer confidence, US existing home sales and business condition will be of interest on Tuesday. We also have Tesla and Alphabet earnings. Wednesday’s prelim. S&P Global US PMI readings will be of interest as will rhetoric from the ECB’s Guindos and Lane. Thursday’s Q2 US GDP print, expected at 1.7%, will garner market focus, we also have US personal consumption and the core PCE price Index to digest. The Fed’s favoured PCE price index readings follow on Friday, and the Uni. of Michigan sentiment and inflation figures will attract market focus on Friday.
The week started off with dovish sentiment from the Fed’s Chair who said the central bank won’t wait for 2% inflation before cutting rates. Later Fed officials signalled that the US central bank is moving closer to cutting interest rates, potentially as early as September. Waller, Williams, and Barkin all expressed increased confidence in the improving inflation trajectory and a more balanced labour market. While ruling out a rate cut at the July meeting, officials suggested that data between July and September would be crucial in determining the timing of the first reduction. Financial markets are now pricing in rate cuts in September, November, and December, potentially bringing the benchmark policy rate to the 4.50%-4.75% range by the end of 2024. Despite this optimism, officials remain cautious, emphasising the need for continued progress in bringing inflation sustainably towards the 2% target.
The IMF maintained its 2024 global growth forecast at 3.2% but revised the 2025 forecast upward by 0.1% to 3.3%. While risks to the outlook remain balanced, the IMF warned that lack of progress in inflation could delay monetary policy easing, potentially risking global growth. The IMF raised China’s GDP growth forecast to 5.0% for 2024 (from 4.6%). However, given lower-than-expected 2Q24 GDP growth, the IMF acknowledged downside risks to its full-year growth forecast for China.
China’s Third Plenum concluded with a focus on boosting domestic technology and innovation amid US-China tensions. The official communique emphasised adapting to technological revolutions and improving key technological breakthroughs, while balancing development with national security. China reaffirmed its commitment to achieving its 5% growth target and pledged to “actively” expand domestic demand. We read this as a continuation of existing policies, focusing on innovation, managed markets, and measured market-oriented reforms. China is looking to prioritising technological self-reliance and productivity enhancements as a response to US containment efforts, while also indicating potential fiscal reforms and rural-urban integration efforts.
Closer to home Britain’s services sector inflation remained unexpectedly high at 5.7% in June, surpassing economists’ predictions and the BoE’s forecasts. This persistence was largely driven by hotel and restaurant prices, influenced by a minimum wage rise and events like Taylor Swift’s tour. The data has led traders to reconsider expectations of an interest rate cut, complicating the Bank’s upcoming decision on 1 August. Officials, including Chief Economist Huw Pill, have expressed concern about ongoing inflationary pressures in the labour market and services sector. The impact of Swift’s tour on hotel and live music ticket prices may continue to affect inflation figures in August.
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