Yesterday’s US CPI report was broadly in line with expectations, with the monthly core (excluding food and energy) coming in unchanged at 0.2% for July, the smallest consecutive monthly increase in two years. The steady wave of disinflation witnessed in recent months has increased the odds of a pause from the Federal Reserve when they meet next month. The central bank last paused in June but estimated that two further increases were required – the first came last month, and the jury is out on whether they will deliver a further increase this year. Officials remain divided, with Governor Michelle Bowman earlier this week reiterating her view that the Fed may need to increase further to restore price stability, whilst Philly Fed’s Patrick Harker said that policymakers may be able to hold steady. After the data was released, both yields and the US dollar slipped whilst equities surged, but the price action faded later in the day. The attention now shifts to this afternoon’s PPI report, which is expected to drift higher.
Markets received a pleasant Friday morning surprise earlier, with data released showing that the UK economy delivered its strongest quarterly growth in more than a year. GDP rose 0.2% from the first quarter, the largest increase since Q1 2022, and a significant improvement on the 0.1% gain that markets had predicted, with the UK economy expanding 0.5% in June. Manufacturing and construction output were both stronger than expected in June and consumer spending during the quarter rose 0.7%, the biggest quarterly increase in more than a year. The data comes ahead of the key CPI and employment report next week.
Have a great weekend.
