Weekly economic & financial commentary

Wells Fargo Research Team Wells Fargo

Summary

United States: "Transitory" Feels Increasingly Long

Chair Powell reiterated his view that current inflation pressures would prove temporary in testimony to Congress, but there were few signs of inflation cooling this week. Both consumer and producer price inflation came in notably higher than expectations for June, while plans among small businesses to raise prices rose to a 41-year high.
Retail sales rose 0.6% in June, which was stronger than expected and an indication that stronger spending on services as the economy reopens need not come at the expense of goods.
Next week: Housing Starts (Tuesday), Existing Home Sales (Thursday), Leading Index (Thursday)

International: China Resilient; Monetary Policy Divergences Building

China reported Q2-2021 GDP data and June activity indicators this week. Our takeaway is that China's economy, while slowing, is still resilient. In addition, the Reserve Bank of New Zealand announced an end to its asset purchase program, while the Bank of Canada slowed asset purchases and the Bank of England turned more hawkish, all while the Fed remained relatively dovish.
Next week: European Central Bank (Thursday), South African Reserve Bank (Thursday), U.K. Retail Sales (Friday)

Interest Rate Watch: A Rise to Nine and Hold the Line

The Fed's balance sheet recently crossed over $8 trillion; this week's Interest Rate Watch considers where it is going from here and what it means for financial markets.

Topic of the Week: Extreme Heat and Megadrought Threaten U.S. Agriculture

The summer has brought severe heat, worsening drought conditions, wildfires and shrinking water supplies to the West, which is disproportionately affecting the region's agriculture industry.

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Wells Fargo Research Team

Wells Fargo

EUR/USD hits two-day highs near 1.1820

EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.

GBP/USD reclaims 1.3600 and above

GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.

Gold climbs further, focus is back to 45,000

Gold regains upside traction and surpasses the $4,900 mark per troy ounce at the end of the week, shifting its attention to the critical $5,000 region. The move reflects a shift in risk sentiment, driving flows back towards traditional safe haven assets and supporting the yellow metal.

Crypto Today: Bitcoin, Ethereum, XRP rebound amid risk-off, $2.6 billion liquidation wave

Bitcoin edges up above $65,000 at the time of writing on Friday, as dust from the recent macro-triggered sell-off settles. The leading altcoin, Ethereum, hovers above $1,900, but resistance at $2,000 caps the upside. Meanwhile, Ripple has recorded the largest intraday jump among the three assets, up over 10% to $1.35.

Three scenarios for Japanese Yen ahead of snap election

The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.

XRP rally extends as modest ETF inflows support recovery

Ripple is accelerating its recovery, trading above $1.36 at the time of writing on Friday, as investors adjust their positions following a turbulent week in the broader crypto market. The remittance token is up over 21% from its intraday low of $1.12.