The end of the crisis in the US? Americans started spending money

Yesterday we learned the report on Americans’ spending. It did not shake the markets. As a result, the dollar gained moderately, Wall Street indices ended the day mixed, and yields of American 2-year bonds moved within a narrow range of fluctuations. The readings were in line with forecasts, so the market’s subdued reaction seems understandable. Today, the focus shifts back to the labor market. The first Friday of the month is, of course, a permanent item on the agenda – the NFP report.

The market is looking at the US

Yesterday’s main macro publication was the July report on Americans’ personal income and expenses. It included the Federal Reserve’s preferred measure of inflation, the core personal consumption expenditure deflator (PCE core), which is a broader measure of prices than the widely known CPI index. It increased by 0.2 percent. month to month for the second month in a row.

On a year-to-year basis, there was an increase from 4.1%. up to 4.2 percent Currently. The indicator of basic services excluding housing, which the Fed monitors due to the greater impact of labor costs, was a negative surprise. Here we have an increase of 0.46 percent. after an increase of 0.3 percent in June. Therefore, there is no significant slowdown in the year-on-year pace. With unemployment remaining at a low 3.5%, a tight labor market could keep wage pressures elevated and mean inflation will remain higher for longer. As a result, we may hear a hawkish stance from some Fed officials.

Americans started spending

Americans’ personal spending showed strong growth of 0.8 percent. m/m in nominal terms and 0.6 percent. m/m in real terms. This gives rise to the belief that GDP in the third quarter will be solid at 3-3.5%. on an annual basis. Today we will receive another data package. According to forecasts, the NFP report is to show another cooling of the labor market, which will be illustrated by a drop in employment in the non-agricultural sector to the level of 170,000. from 187 thousand a month earlier.

The unemployment rate is expected to remain unchanged and amount to the above-mentioned 3.5%. This week we learned about other reports that indicated that the condition of the labor market is deteriorating. On Tuesday, the JOLTS survey pointed to weaker U.S. labor demand, and Wednesday’s ADP private sector jobs report came in below estimates. Each release surprised the market and caused greater volatility. The dollar weakened and the EUR/USD rate rose above 1.09. It is true that this upward movement at yesterday’s session was largely reduced, but if the data surprises negatively, then in my opinion the rate may quickly find itself near the local maximum of 1.0940.