In the United States, GDP grew less than expected in the second quarter, and the labor market showed signs of cooling, which enabled the Fed to suspend its aggressive rate hike campaign in September.
German inflation data, which rose slightly more than expected in August, instead appears to be pushing the ECB for another rise on 13 and 14 September. Financial markets are watching developments from a distance, and if Wall Street rises, perhaps heralding the end of the Fed bull cycle, then in Europe, stock markets are weak, with Frankfurt losing 0.24% and Milan closing unchanged with a slight increase of 0.09 %. .
The US economy expanded 2.1% in the second quarter, less than originally estimated and below analysts’ forecasts. The downward revision of growth rates was apparently accompanied by a cooling of the labor market. Indeed, the private sector created just 177,000 jobs in August, the lowest level in five months. This is “bad news” on paper, but in the new context of fighting inflation, however, it becomes good news as it seems to confirm that the Fed’s shock medicine is working and the central bank can afford another pause to assess the consequences of its policy. .
At the next meeting, it is not yet clear what Jerome Powell will do. Despite the hawkish intervention at Jackson Hole, analysts are betting that the Fed chairman will not change rates on September 19 and 20. A new tightening, if not two, is likely between November and December to deal another blow to the gallop of inflation, which, although declining, remains stubbornly above 2%. In recent months, the race has been fueled by the so-called “Fanflation”, that is, inflation in the entertainment industry, which has jumped along with ticket prices for Taylor Swift and Beyoncé concerts.
However, in addition to putting pressure on inflation, the two stars are boosting GDP significantly with $8.5 billion invested in it, indicating continued consumer power. In fact, despite the rise in prices, Americans continue to spend, and the GDP data is another confirmation of this. The downward revision of the second quarter figures to +2.1% from the previously expected +2.4% is actually due to lower-than-expected investments and the company’s reserves.
While the Fed appears to be poised for a pause given the ongoing labor market rebalancing, in Europe the ECB appears to be heading for further rate hikes instead. With German inflation rising more than expected and Spanish inflation hitting a three-month high, investors are betting that Christine Lagarde he will be forced to start a new tightening of the policy in September. IN Germany prices rose by 6.4% in August, which is less than July’s 6.5%, but higher than the 6.2% expected by the market. IN Spain instead, inflation rose to 2.4% from 2.1% in July due to energy prices.
Complicating the structure of the ECB’s actions is also a fall beyond the forecasts of confidence in the prospects of the European economy, both in the manufacturing sector and on the part of consumers. Thus, for Lagarde, the September meeting promises to be a new decisive appointment: the speed of the price fall actually puts the ECB in an awkward position.
Analysts say the Eurotower decision will be a “near call”, noting that robust price increases in Germany and Spain show that “eurozone inflation may not fall as much as expected, thus increasing the chances of another eurozone rate hike”. September”.
TG 20 on Friday 04/14/2023