The core personal consumption expenditure figure released on Friday was higher than expected at 4.7%, showing no setback in July
Higher was also the labor cost index which rose 1.3% in the quarter, topping the 1.2% expected.
Therefore, the inflation for July, which at first was expected to be somewhat lower due to the falls in fuels and raw materials, still does not give any sign of a decrease. The labor costs continue to rise, being one of the main reasons for concern of the Federal Reserve pushing them to start raising interest rates.
However, Treasury bond yields did not react to these figures and continued to fall, anticipating less aggressive interest rate hikes in the future.
The market finds somewhat contradictory data, while the technical recession was confirmed with a negative GDP figure for Q2. This can effectively slow down the pace of interest rate hikes by the Federal Reserve, as the data on consumer confidence in the University of Michigan increased in July to 51.5. The still high employment rate can explain this despite the tightening of monetary policy. From now on, lower job creation numbers will probably be seen, and layoffs will increase. Still, we must remember that the labor market is currently at full employment, so the economic impact should not be high.
The Federal Reserve will consider all these aspects for the decision they will have to take at their next meeting in September. Everything seems to indicate that this time the Fed will lean towards a rise of only 50 bps, with which most market analysts seem to agree. The slowdown in the economy will weigh more heavily on the Fed officials' decision, as inflation expectations have dropped significantly. And this is reflected in the interest rate curve, with longer-term bond yields falling.
The market embraced this scenario, and the US Dollar weakened on the last day of the month.
At the same time, the stock market reacted positively, partly due to expectations of lower interest rates but also driven by the good results for the Q2 that the major North American companies are publishing.
From a technical analysis perspective, the Nasdaq index closed the session slightly above the 12,947 level, the point from which the downtrend would be considered finished.
Sources: Bloomberg, Reuters
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