Agencies
Consumer confidence in the United States climbed to 103.3 in August according to the Conference Board index, surpassing both expectations and the previous reading.
The better-than-expected print is a continuation of a series of positive economic data that showcase lower inflation, a softening market, and improved sentiment. It likely further reinforces and supports the market narrative and Fed signals of an imminent rate cut in September. Markets are currently pricing in 100 bps cut by year-end, and a 25 bps cut in the September meeting by the Fed.
The US economy grew at a robust 3 percent annual rate in the second quarter of 2024, driven by strong consumer spending and business investment. This marks an upgrade from the previously estimated 2.8 percent growth and a significant acceleration from the 1.4 percent growth in the first quarter.
Consumer spending, which makes up about 70 percent of economic activity, increased by 2.9 percent, while business investment rose by 7.5 percent, with equipment investment jumping 10.8 percent. Additionally, unemployment claims slightly decreased by 2,000 to 231,000 last week, indicating a healthy labor market despite high interest rates.
In July, inflation in the US edged higher, with the personal consumption expenditures (PCE) price index rising by 0.2 percent for the month and 2.5 percent year-over-year, matching expectations.
Core PCE, which excludes food and energy prices, also increased by 0.2 percent monthly and 2.6 percent annually, slightly below the 2.7 percent forecast.
Core inflation has remained steady, with shelter costs continuing to rise, offsetting declines in other areas. Personal income grew by 0.3 percent, while consumer spending rose 0.5 percent, even as the personal savings rate fell to its lowest since June 2022. Goods prices fell slightly, while services prices increased.
The Federal Reserve is expected to go ahead with its first interest rate cut in over four years, with markets pricing in a high likelihood of a quarter-point reduction in September.
Fed officials, including Chair Jerome Powell, have expressed confidence in inflation returning to the 2 percent target, shifting focus towards supporting the labor market.
The unemployment rate remains low at 4.3 percent but has been trending upward, with slower hiring expected.
Attention now turns to the upcoming August nonfarm payrolls report, which is expected to show an increase of about 175,000 jobs. The US dollar Index was last seen trading at 101.698.
Eurozone inflation fell to 2.2 percent in August, its lowest level in three years, largely due to lower energy costs. This drop aligns with expectations and brings inflation closer to the European Central Bank’s (ECB) 2 percent target, following three years of higher-than-target inflation.
Core inflation, excluding food and energy, eased slightly to 2.8 percent. However, services inflation increased, driven partly by temporary factors like the Olympic Games in Paris, which might concern ECB policymakers due to its potential link to wage growth.
Despite the decline, the ECB is expected to cut interest rates in September, with ongoing discussions about further easing in October due to moderating inflation, weaker economic growth, and a softer labor market.
Markets are anticipating more rate cuts than the ECB’s projections, reflecting greater optimism about the inflation outlook. However, rapid wage growth in the services sector remains a key concern for the ECB.
Inflation in Australia has dropped to its lowest level since March, largely due to a 5 percent annual reduction in electricity prices, helped by government rebates. The Australian Bureau of Statistics reported a 3.5 percent increase in consumer prices for the year to July, down from 3.8 percent in June.
However, this is slightly higher than the 3.4 percent expected by economists, indicating that interest rate cuts may still be some time away.
Despite the overall decrease in inflation, fruit and vegetable prices surged by 7.5 percent in July, up from 3.6 percent in June, while alcohol costs also rose by 3.7 percent, compared to 3.4 percent in the previous month.