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Investing.com – Everyone is now on their toes and waiting for the Fed’s speech next Tuesday and Wednesday, after a handful of unexpected and unexpected data prompted markets to re-price the next Fed decision.
Surprises don’t come alone
The inflation rate in the United States rose by 0.1% on a monthly basis and 8.3% on an annual basis, revealing a marginal slowdown in light of the decline in gasoline prices, while the core inflation rate rose by 0.6% on a monthly basis and 6.3% on an annual basis.
Producer prices declined last month, declining by 0.1% on a monthly basis and 8.7% on an annual basis, which largely reflects the decline in energy prices.
– A sudden rise in retail sales in the United States after declining the previous month, and the value of retail purchases increased by 0.3% last month after declining by 0.4% after the adjustment, down from July levels, while the core figure rose by 0.8%.
– UK GDP grew by just 0.2% m/m after a sharp 0.6% decline in June, mainly due to the good performance of the service sector.
Prices in the United Kingdom increased by 9.9% on an annual basis, which is slightly less than expectations that indicated a rise of 10.2% and less than the July rate of 10.1%, while the core index, which does not include volatile elements, increased by 0.8% on a monthly basis. and 6.3% on an annual basis.
The Bank of England expects inflation to reach 13% in the fourth quarter of 2022.
The labor market in Australia added 33,500 jobs in August, after falling by 41,000 jobs in July. The unemployment rate rises to 3.5% compared to 3.4% due to the entry of more people into the labor market.
The US rose more than 1% last week, which led to a decline below the parity level and the British pound reaching its lowest level since 1985.
Stocks on Wall Street continue to slide, while two-year yields, a measure sensitive to monetary policy, rose to the highest levels since 2007.
market movement
Safe haven flows continue to tighten their grip on the financial markets, which contributed to strengthening the US currency’s prices and enabling it to maintain its strength against other major currencies.
The dollar rose by 1.09% last week, which led to the euro trading at par with the dollar, while it reached the level of 1.14 for the first time since 1985 on the back of disappointing data from the UK.
On Wall Street, US stocks continued their decline in light of the continued strength of the dollar, indicating fears of the negative impact of the tight monetary policies pursued by the Federal Reserve, which may undermine economic growth.
Turning to bonds, the two-year Treasury yields, which are highly sensitive to monetary policy, continued to rise to their highest levels since 2007, deepening the reversal of the curve historically known as a sure sign of economic stagnation.
Unexpected inflation
Consumer prices in the United States rose again last month, rising by 0.1% compared to July levels after stabilizing unchanged from the previous month and compared to the disappointing expectations of a decrease of 0.1%.
Compared to the previous year, we note an increase in prices by 8.3%, with a marginal slowdown that is largely due to the decrease in gasoline prices. The data comes despite the decline in the prices of two products that contributed significantly to raising inflation levels during the past year, namely gasoline and used cars.
For example, the average cost of a gallon of gasoline in the United States fell to $3.83 at the end of August after it topped $5 for the first time in June, and although there are signs that key drivers of higher inflation such as gasoline prices and supply chain issues are starting to fade, it appears that The fundamental indicators are getting worse.
The core CPI, which excludes the prices of volatile commodities such as food and energy, rose 0.6% compared to July levels and 6.3% year on year, marking the first annual growth rate in six months.
The rise in the core inflation rate confirms the extent to which inflation is now entrenched in the economy. This report, especially the massive rise in the core inflation rate, may be a new indication that the Federal Reserve should continue to adopt strict policies to curb inflation by raising interest rates.
The central bank is expected to raise the interest rate by another 75 basis points at its meeting scheduled for September 21. Prices received by producers for goods and services fell last month, providing a respite from inflationary pressures that threaten to push the economy into recession.
The producer price index fell 0.1% month-on-month, according to the Bureau of Labor Statistics report. On an annual basis, the index rose by 8.7%, recording a sharp slowdown compared to its 9.8% rise in July, after achieving the lowest annual gain since August 2021.
At the same time, the core figure, which does not include food, energy and commercial services, increased by 0.2% m/m and 5.6% y/y, largely due to lower energy prices.
Retail spike
Consumer spending data revealed that demand continued despite rising inflation, as retail sales rose 0.3% m/m in August, which outpaced the rise in inflation and represented a strong reversal of its 0.4% decline in July. Excluding gasoline, retail sales rose 0.8%.
The data was not adjusted for inflation, and in general, consumers were able to increase their spending due to lower gasoline prices, which led to increased spending on other categories.
As for the Federal Reserve, the data revealed that consumer demand was stable at a time when it is facing historically high interest rates and inflation rates reaching record levels, and this would reinforce the direction of monetary policy makers to continue implementing their strict policies and sharply raise borrowing costs.
slower than expected
The British economy grew at a slower pace than expected in July, as GDP rose only 0.2% m/m after a sharp 0.6% drop in June, and production was flat in the three months ending in July, compared to a 0.3% growth in the months. The three ended in April.
Looking at the sectoral distribution, the services sector came at the fore, recording a growth of 0.4%, on the other hand, production declined by 0.3% after declining by 0.9% the previous month.
It should be noted that there are non-recurring factors attributed to the sharp decline in June such as the additional bank holiday due to the platinum jubilee of Queen Elizabeth, which in turn makes the July data good in comparison, similarly, activity may be affected by the bank holiday, the official holiday for the Queen’s funeral and ten days of mourning for her death Later in September.
The data comes just a month after the Bank of England announced that it expects the economy to enter a recession by the end of the year and to continue into early 2024, with both consumers and businesses still struggling to recover from higher prices and energy bills.
On a brighter note, some economists believe the UK could see some growth following the government’s decision to cap hikes in gas and electricity prices, as well as new Prime Minister Liz Terrace’s pledge to reverse the recent 1.25% increase in the value of National Insurance.
The Bank of England is expected to raise interest rates for the seventh time in a row by 75 basis points at its meeting scheduled for September 22nd.
will raise interest
Data released by the Australian Bureau of Statistics last week revealed that net employment rose by 33,500 jobs in August, in line with expectations and offsetting the decline witnessed in July by 41 thousand jobs.
The unemployment rate also increased to 3.5% compared to 3.4%, which is attributed exclusively to the entry of more people into the labor force in search of work, and the data confirms the flexibility of the labor market in the face of high interest rates.
From now on, markets will be watching closely to see if the RBA will raise rates by another 50 basis points, or only 25 basis points at its next meeting in October.
So far, the market is leaning towards a 25bp rate hike next month after RBA Governor Philip Lowe opened the door to slowing the pace of increases in part due to wage growth which is about half slower than the US or UK.