Attention will remain very much on the US economy and the Federal Reserve as we head into week and month-end.
The Fed statement released on Wednesday gave few clues on the timing of the first rate hike but left the door open to September while reiterating its data dependency. There appears to be a clear preference for a rate hike this year but the Fed is keeping its cards very close to its chest.
Yesterday’s GDP release didn’t really change much, with growth in the second quarter falling slightly below expectations at 2.3% but first quarter growth being revised higher to 0.6%. Today’s data could arguably be of greater importance, particularly the employment cost index which offers insight into future inflation pressures.
If businesses are paying more for labour, it’s clearly a good indication of wage inflation but also, these cost increases are likely to be passed on to the end consumer in the form of price increases. Given that the Fed is clearly seeking evidence of inflationary pressures to compensate for the deflationary impact of falling commodity prices, this and other similar measures could be key.
A quarterly rise of 0.6% is expected today which would extend the good run of at least 0.6% growth to five quarters. Of course, plenty of improvement is still required in order to return to pre-financial crisis levels but these are the best consistent figures we’ve seen since the end of 2008. Whether the Fed deems them good enough to ensure price stability or not is yet to be seen.
The Chicago PMI will also be of interest to traders and is expected to return to growth territory following two months in contraction. Also of note is the revised UoM consumer sentiment reading, which is expected to be revised from 93.3 to 94. The consumer is extremely important to the US economy and to future price inflation as strong demand tends to precede price hikes.
The inflation expectation component is also very important because as long as this remains high, the deflationary impact of commodity prices are unlikely to weigh on long-term inflation. It’s when this starts to decline that the Fed has a real problem on its hands.
The S&P is expected to open 2 points lower, the Dow 33 points lower and the Nasdaq 4 points lower.
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities.
Opinions are the authors — not necessarily OANDA’s, its officers or directors. OANDA’s Terms of Use and Privacy Policy apply. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.
Recommended Content
Editors’ Picks
EUR/USD holds positive ground above 1.0750 ahead of Eurozone PMI, PPI data
EUR/USD trades in positive territory for the fourth consecutive day near 1.0765 during the early Monday. The softer US Dollar provides some support to the major pair. Traders await the HCOB Purchasing Managers’ Index (PMI) data from Germany and the Eurozone, along with the Eurozone PPI.
GBP/USD rises to near 1.2550 due to dovish sentiment surrounding Fed
GBP/USD continues its winning streak for the fourth consecutive day, trading around 1.2550 during the Asian trading hours on Monday. The appreciation of the pair could be attributed to the recalibrated expectations for the Fed's interest rate cuts in 2024 following the release of lower-than-expected US jobs data.
Gold price rebounds on downbeat NFP data, softer US Dollar
Gold price snaps the two-day losing streak during the Asian session on Monday. The weaker-than-expected US employment reports have boosted the odds of a September rate cut from the US Federal Reserve. This, in turn, has dragged the US Dollar lower and lifted the USD-denominated gold.
Bitcoin Cash could become a Cardano partnerchain as 66% of 11.3K voters say “Aye”
Bitcoin Cash is the current mania in the Cardano ecosystem following a proposal by the network’s executive inviting the public to vote on X, about a possible integration.
Week ahead: BoE and RBA decisions headline a calm week
Bank of England meets on Thursday, unlikely to signal rate cuts. Reserve Bank of Australia could maintain a higher-for-longer stance. Elsewhere, Bank of Japan releases summary of opinions.