Weekly economic and financial commentary

Summary

United States: This Party Is Breaking Up Fast

• Signals of a slowdown are starting to flash across sectors. Business and consumer sentiment have faltered, real consumer spending has weakened, housing activity has stalled and business investment is downshifting in response. On the other hand, robust employment growth and solid gross domestic income suggest we are not in the hole just yet.
• Next week: Housing Starts (Tue), Existing Home Sales (Wed), Initial Jobless Claims (Thu)

International: U.K. Growth Surprises to the Upside, Bank of Canada Delivers a Super-Sized Hike

• U.K. GDP registered a gain in May, but some cracks in the economy may be starting to show, specifically with regard to the consumer sector. Elsewhere in the G10, the Bank of Canada delivered a super-sized 100 bps hike at its July monetary policy meeting, bringing the policy rate to 2.50% and signaling more rate hikes to come.
• Next week: U.K. CPI (Wed), Canada CPI (Wed), ECB Rate Decision (Thu)

Interest Rate Watch: Asset Inflation Is Already Being Curbed

• The Federal Reserve is continuing to reduce its balance sheet holdings of Treasuries and mortgage-backed securities (MBS), increasing the pace of the drawdown in September. However, the reduction of the MBS portfolio may prove to be difficult in the face of rising interest rates that have curtailed mortgage refinancing. We will also be on the lookout for liquidity challenges in the fall as the Fed's balance sheet is reduced.

Credit Market Insights: Record High for Monthly Auto Loan Payments

• The average monthly auto loan payment reached a record high of $712 in June with 12.7% of new car buyers paying at least $1,000 per month for their cars, according to Cox Automotive Inc. Ultimately, with peak inflation not yet behind us and a potential economic slowdown looming, household balance sheets may be further stressed by these large monthly payments.

Topic of the Week: Beige Book Heralds Slowing Growth, Inflation Fears, Recession Risk

• This week, the Federal Reserve released the Beige Book for its July meeting. Regional banks are describing situations seen across the country with some of the following language: slowing growth, inflation fears and even some risks of recession.

Read the full article here