July 26, 2024

“US economic growth reaccelerated in the last quarter and higher-than-expected quarterly core PCE inflation may add a touch more caution to the Federal Reserve meeting next week. The US is in focus today, this time with a June inflation print.”

Tim Hallinan – Trading Director

Main Headlines

The CEO of European car giant Stellantis, which owns brands like Fiat, Peugeot, and Jeep, told reporters yesterday that he would shut down underperforming subsidiaries if they cannot improve margins. It came as the company’s shares slumped 10% after a poor set of H1 financial results.

Cyber analytics firm CyberCube has estimated that insured losses from last week’s IT outage could reach up to $1.5bn globally, which could be the highest ever cyber-related insurance loss. However, Fitch do not expect any huge financial impact on insurers.

GBP

Sterling continued to inch slightly lower against the dollar yesterday as front-end yields cooled and markets priced in a slightly higher probability for a Bank of England rate cut next week. That monetary policy meeting is the primary domestic focus for sterling, given that we’ve now had all the most relevant data releases ahead of the event. So far, the measures that the decision hinges on have been mixed, with both wage growth and services inflation cooling slightly but remaining rather sticky. Markets also won’t get any further clues about how the core of the MPC is thinking, having already been left in the dark due to a pre-election blackout and a dry spell for speeches. The 50/50 probability implied by markets reflects in large part the fact that nobody really knows how the vote split will move, and that makes it a binary event for sterling. Inflation data from the US and the eurozone will keep traders busy in the meantime.

EUR

There wasn’t much to guide the euro yesterday, and it largely held firm even as inflation and growth data surprised to the upside in the US. The German ifo business climate index underscored the problems plaguing the eurozone’s largest economy and unexpectedly weakened yesterday, reflecting the continued poor demand and political uncertainty of which markets are well aware. Loan growth printed lower than expected too. Data is light on the ground today and it’s all eyes on a fresh round of CPI inflation data next week.

USD

US GDP growth strongly outperformed expectations in Q2, accelerating to an annualised 2.8% rate of expansion, but failed to boost the dollar overall. Consumer spending fuelled the bulk of the growth, rising 2.3% versus 1.5% in the first quarter, and this was across both the services and goods sectors. Core PCE for the first quarter was hot too, beating the 2.7% forecast at 2.9%. While much improved from Q1, it will take away from the Fed’s confidence to cut rates somewhat. However, the July rate cut was dead and buried already, and markets are firmly betting on a rate cut in September. There are a few reasons why that is the case. Firstly, a falling personal savings rate was in part responsible for the increased spending; real disposable income growth slowed, and yet consumers spent more. That’s hardly a sustainable route to growth. Secondly, the labour market has deteriorated significantly, savings are running out, and the effects of heavy fiscal spending are fading, which means that economists remain quite confident in a continued slowing. The crucial point is that the Fed should cut before growth starts to cool off too much, and any policy moves take a long time to filter through to the real economy. June’s monthly core PCE figure is the main event his afternoon, where the consensus is pointing to a relatively soft 0.2% print.

Markets

Stocks were not sure where to go in yesterday, in a choppy session that began with a 1-1/2-month low for the Nasdaq before bouncing. It was a similar story in the UK, where the FTSE 100 initially touched a three-month low – despite all the talk of buoyed sentiment for UK assets – before recovering sharply. Earnings continue to trickle in today, with the likes of Daimler, 3M, NatWest and Eni among those publishing their Q2 financials

Main Economic Events (All Times CET)

1:30am: Tokyo Core CPI
2:30pm: US Core PCE Price Index
4:00pm: US Revised UoM Consumer Sentiment

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