Weekly economic & financial commentary

Wells Fargo Research Team Wells Fargo

Summary

United States: Demand Continuing to Outstrip Supply

Although the headline rate of Q2 GDP came in softer than expectations, part of that was due to supply chain problems as businesses had to draw down inventories to meet demand, resulting in a drag on growth.
Consumer spending exceeded expectations and the latest consumer confidence figures rose to a post-pandemic high.
Next week: Construction Spending (Monday), ISM Manufacturing (Monday), Employment (Friday)

International: Eurozone Enjoying an Economic Recovery Sweet Spot

Eurozone Q2 GDP rose more than expected, with particularly large gains for Italy and Spain, while confidence surveys suggest that momentum carried into at least the early part of the third quarter. Meanwhile, CPI inflation quickened only moderately in July, while core CPI actually slowed. Given this favorable growth and inflation mix, we expect the European Central Bank to maintain its accommodative monetary policy and, indeed, ease policy further by December.
Next week: China PMIs (Saturday), Brazil monetary policy announcement (Wednesday), Bank of England policy announcement (Thursday)

Interest Rate Watch: "Progress" Has Been Made, But Is It Enough To Taper?

The Federal Open Market Committee (FOMC) announced no major policy changes at the conclusion of its two-day meeting on July 28, leaving the target range for the federal funds rate unchanged at 0.00% to 0.25%, and maintaining its monthly purchase rate of Treasury securities and mortgage-backed securities at $80 billion and $40 billion, respectively.

Credit Market Insights: Millennial Market Makers

Despite high home prices and elevated debt burdens, homeownership among younger cohorts is starting to pick up meaningfully in the post-pandemic economy.

Topic of the Week: Infrastructure Deal Is the Appetizer to the Fall Fiscal Feast

This week, Congress took a major step toward enactment of the $559 billion bipartisan infrastructure deal. The Senate voted 67-32 in favor of clearing an important procedural hurdle to eventual passage.

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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.