Three fundamentals for the week: Focus on the fragility of the US economy

"We will do everything we can to support a strong labor market" – it does not get clearer than that. Federal Reserve Chair Jerome Powell committed on Friday to buoy the economy. Is the world's largest economy faltering? The first key two figures to be released this week are focused on the fragility of the economy, and the last one is on the battle the Fed is winning: inflation. Here is a preview for the last week of August's key events. 

1) US CB Consumer Confidence to take the pulse of the economy

Tuesday, 14:00 GMT. The University of Michigan's Consumer Sentiment Index is published earlier but is prone to political influences. Democrats have become more confident about the economy once President Joe Biden stepped aside from the presidential race, while Republicans have become more pessimistic.

The upcoming report about Consumer Confidence from the Conference Board will be released later, but it will be less exposed to politics. In the past three months, it surprised to the upside, hovering around 100, showing that consumers are doing better than the slower economic data suggests.

After hitting 100.3 in July, a similar figure is likely. A dip might scare markets, showing that the hole is bigger, while an upside surprise will keep them buoyed. Gold needs a soft data point while the US Dollar needs a robust number to advance. 

2) US Jobless Claims gain even more importance

Thursday, 12:30 GMT. Revised Nonfarm Payrolls data for the past year was depressing – over 800,000 jobs were shed from the total. That painted a bleaker picture of hiring in the 12 months ending in March. What about the most recent period?

Weekly jobless claims come to help out, and even more so after Powell's speech. Unemployment claims hit 232,000 in the week ending on August 16, and a similar outcome is expected for the week ending August 23.Such figures are above the lows, but far from being worrying.

A drop below 230,000 would be encouraging, while an increase to 240,000 or higher would be worrying. The US Dollar and stocks need upbeat data, while Gold bulls need softer figures. 

3) Core PCE – the Fed favorite still needs to continue falling

Friday, 12:30 GMT. The Fed targets on the core Personal Consumption Expenditure (PCE) Price Index as its preferred inflation gauge, so it matters to markets. While the focus has shifted to the labor market, underlying inflation still needs to fall toward the bank's 2% target.

Core PCE MoM rose by a moderate 0.2% rate in June, and the same outcome is expected for July. The YoY figure stood at 2.6%, a far cry from the inflationary days, but still not at 2%. Another slide is positive for stocks, a boost for Gold, and another blow to the US Dollar. Sticking at 2.6% or rising would do the opposite. 

US Core PCE YoY. Source: FXStreet.

The data release also has the last word of the week and the month – and before a long weekend in the US. That implies price action will likely be stronger than usual in response. 

Final thoughts

Investors cheered Powell's determined and clear dovish message, but markets have yet to stabilize. This week's data will provide more evidence about how the US economy is doing.