Mid-Week Update
Macro D
From 12 to August 16 2024, the macroeconomic agenda is characterized by significant macroeconomic data for the Old Continent's leading economies and the United States. In the meantime, some general news shows us the current macro context.
A few days ago, two representatives of the Central Bank, Tom Barkin and Jeffrey Schmid, respectively the president of the Richmond Fed and the Kansas City Fed, stated that the conditions still need to be in place to intervene on the cost of money. For Barkin, the economic conditions still show strength and do not justify a rapid reaction by the Fed. At the same time, Schmid said he is not ready to support a rate cut with inflation still above the target and a healthy labour market despite the recent cooling.
Meanwhile, Federal Reserve Governor Michelle Bowman softened her usually hawkish tone on Saturday, highlighting some additional "welcome" gains on inflation over the past two months. However, she said inflation remains "uncomfortably above" the central bank's 2% target and is subject to upside risks. U.S. Vice President Kamala Harris said Saturday that the Federal Reserve is independent and would never interfere in its decisions if she won the November 5 presidential election.
In her words, the Fed is an independent entity, and as chair, I would never interfere in its decisions, Harris told reporters in Phoenix, Arizona.
The Fed's attention is now mainly focused on the labour market. If the tendency to disinflation continues, then a reduction in interest rates during the year can become a reality.
If it has passed by looseness on Monday, we begin to feel the weight of the macro environment on Tuesday. In the United Kingdom, the number of unemployed applicants requesting a subsidy (claimant count) increased (more than expected): in July 2024, 135 thousand units were growing. Instead, the unemployment rate dropped to 4.2% in June, compared to 4.4% in the previous month and 4.5% expected by analysts. In the three months in June, the occupation marked an increase of 97 thousand units, after a growth of 19 thousand in the previous month. Finally, the growth rate of middle wages always showed an increase of 5.4% in June.
How did the pound react?
The pound rose unexpectedly after the drop in the unemployment rate, a reaction that caught many by surprise and added an element of intrigue to the market dynamics.
The pound climbed by to $ 1.2794 as investors focused on the strength of the labour market and its potential impact on the Bank of England. In any case, the situation still needs to be noticeable. Before taking essential positions on the pound, it would be better to understand the actual specific weight of the data just released. The BoE can proceed with an expectant economic policy at least until the beginning of autumn and then cut the rates in conjunction with the choices of the Fed. We remember that BoE cut the rates for the first time from 2020 to the beginning of this month, and the markets are currently serving a probability of about 33% of another cut of a quarter point at the September meeting.
In Europe, the German index Zew has weakened the European price lists that continue to be volatile, while in the United States, the prices for US production (PPI) confirmed further inflation easing in July, which was greeted well by bond investors and equity investors alike. Now all that remains is to wait for the publication of consumer inflation for July, which is expected today and should show a slowdown in the core reading, while we are facing retail sales data on Thursday.
Meanwhile, Jay is there. He observes, with all due respect, those who would like to defend him (Trump) and those who seem to be available to propose a renewal of the employment contract (Kamala Harris).
We stay to look, and in the meantime, we do not lose sight of what happens within the ECB, a key player whose actions will significantly influence the market's stability.
The unexpected increase in July inflation and the unemployment rate close to the minimum record opened the way for new monetary policy moves and important currency developments. At the moment, I don't think the ECB feels the urgency of cutting rates.
Let’s now have a quick look at what the models are telling us and what new has been flagged.