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Investing.com – Everyone is now on the alert and awaiting the Fed’s speech next Tuesday and Wednesday, after a handful of unexpected and unexpected data prompted markets to reevaluate the Fed’s next decision.
Surprises don’t come alone
The US inflation rate increased 0.1% month-on-month and 8.3% year-on-year, revealing a marginal slowdown in light of falling gasoline prices, while the core inflation rate increased by 0.6% on a monthly basis and 6.3% on an annual basis.
Producer prices fell last month, declining 0.1% month-on-month and 8.7% year-on-year, largely reflecting the decline in energy prices.
– A sudden surge in US retail sales after the previous month’s decline and the value of retail purchases increased 0.3% last month after falling 0.4% after the adjustment, down from to July levels, while the main figure increased by 0.8%.
– UK GDP grew by just 0.2% m / m after a steep 0.6% decline in June, mainly due to the good performance of the services sector.
Prices in the UK rose 9.9% year-on-year, slightly below expectations which indicated a 10.2% rise and lower than the July rate of 10.1%, while the core index, which does not include elements of volatility, increased by 0.8% on a monthly basis and by 6.3% on an annual basis.
The Bank of England expects inflation to reach 13% in the fourth quarter of 2022.
The Australian job market added 33,500 jobs in August, after dropping 41,000 jobs in July. The unemployment rate rises to 3.5% against 3.4% due to the entry of more people into the labor market.
The US rose more than 1% last week, which led to a drop below par and the British pound hit its lowest level since 1985.
Wall Street stocks continue to slide, while two-year yields, a measure sensitive to monetary policy, have risen to their highest levels since 2007.
market movement
Safe-haven flows continue to strengthen their hold on financial markets, which has helped to strengthen the prices of the US currency and allow it to maintain its strength against other major currencies.
The dollar was up 1.09% last week, which led the euro to trade at par with the dollar, as it hit the 1.14 level for the first time since 1985 on the back of disappointing data from the dollar. United Kingdom.
On Wall Street, US stocks continued their decline in light of the dollar’s continued strength, indicating fears of the negative impact of tight monetary policies pursued by the Federal Reserve, which could undermine economic growth.
Turning to bonds, yields on two-year Treasuries, which are very sensitive to monetary policy, continued to rise to their highest levels since 2007, deepening the curve inversion historically known as a sure sign of economic stagnation.
Unexpected inflation
US consumer prices rose last month, rising 0.1% from July levels after stabilizing unchanged from the previous month and disappointing expectations of a 0.1% decline.
Compared to the previous year, there was an increase in prices of 8.3%, with a marginal slowdown largely due to the drop in gasoline prices, despite the drop in prices of two products that contributed significantly the rise in inflation levels over the past year, especially gasoline and used cars.
For example, the average cost of a gallon of gasoline in the United States dropped to $ 3.83 at the end of August after exceeding $ 5 for the first time in June, and although there are signs of key drivers of the rise in gasoline. ‘inflation such as gasoline prices and supply chain problems are starting to fade, key indicators appear to be worsening.
Core CPI, which excludes prices of volatile commodities such as food and energy, rose 0.6% from July levels and 6.3% yoy, marking the first annual growth rate in six months.
The rise in the core inflation rate confirms the extent to which inflation is now entrenched in the economy.This report, especially the massive increase in the core inflation rate, could be a new indication that the Federal Reserve should continue to adopt. strict policies to curb inflation by raising interest rates.
The central bank is expected to raise the interest rate by another 75 basis points at its meeting scheduled for September 21. Prices received by producers for goods and services fell last month, providing a respite from the inflationary pressures that threaten to push the economy into recession.
The producer price index fell 0.1% on a monthly basis, according to the report from the Bureau of Labor Statistics. Year-on-year, the index grew 8.7%, slowing sharply from the 9.8% increase in July, after reaching its lowest annual gain since August 2021.
At the same time, the core figure, which does not include food, energy and commercial services, increased by 0.2% mom and 5.6% yoy, mainly due to falling energy prices.
Retail peak
Consumer spending data revealed that demand continued despite rising inflation as retail sales rose 0.3% m / m month, outpacing rising inflation and representing a strong reversal of the decline of 0.4% in July. Excluding gasoline, retail sales increased by 0.8%.
The figures were not adjusted for inflation and, in general, consumers were able to increase spending due to falling gasoline prices, which led to increased spending for other categories.
As for the Federal Reserve, the data revealed that consumer demand has remained stable at a time when it is facing historically high interest rates and inflation rates reaching record highs, which would strengthen the direction of policy makers. monetary policies to continue to implement their strict policies and significantly increase the financial burden.
slower than expected
The UK economy grew at a slower-than-expected pace in July as GDP grew only 0.2% mom after a steep 0.6% decline in June and output remained stable over the three months ended in July, compared with a growth of 0.3% in the months The three ended in April.
As far as sector distribution is concerned, the services sector was at the fore, registering growth of 0.4%, while production decreased by 0.3% after falling by 0.9% the previous month.
It should be noted that there are non-recurring factors attributed to the sharp drop in June as the additional holiday due to Queen Elizabeth’s platinum jubilee, which in turn makes the July data good in comparison, similarly, business may suffer. by the public holiday, the official holiday for the queen’s funeral and ten days of mourning for her death. Later in September.
The data comes just a month after the Bank of England announced it expects the economy to enter a recession by the end of the year and continue into early 2024, with consumers and businesses still struggling to recover from the rising prices and energy bills.
On a more positive note, some economists believe the UK could see some growth following the government’s decision to limit hikes in gas and electricity prices, as well as new Prime Minister Liz Terrace’s pledge to reverse the recent 1.25% increase in the value of national insurance.
The Bank of England is expected to raise interest rates for the seventh consecutive time by 75 basis points at its meeting scheduled for 22 September.
will arouse interest
Figures released by the Australian Bureau of Statistics last week revealed that net employment increased by 33,500 jobs in August, in line with expectations and offsetting the July drop of 41,000 jobs.
The unemployment rate also rose to 3.5% compared to 3.4%, attributable exclusively to the entry into the world of work of more job seekers, and the data confirm the flexibility of the labor market in the face of unemployment rates. high interest.
From now on, markets will be watching closely to see if the RBA will raise rates by another 50 basis points, or just 25 basis points, at its next meeting in October.
So far, the market is leaning towards a 25bp rate hike next month after RBA Governor Philip Lowe opened the door to slowing the pace of hikes in part due to wage growth which is about half as slow. than the United States or the United Kingdom.
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