10 Things You Need To Know: July 25, 2023
Key data releases this week include: FHFA House Price Index (Tue), consumer confidence (Tue), new home sales (Wed), FOMC rate decision (Wed), Q2 GDP (Thu), durable goods orders (Thu), pending home sales (Thu), personal income and spending (Fri), PCE Deflator (Fri), and consumer sentiment (Fri).
Haver
July 20, 2023
Sales of existing homes posted a 3.3% decline (-18.9% y/y) to 4.160 million (SAAR) from an unrevised 4.30 million in May. Sales remained up from the January low of 4.00 million. The Action Economics Forecast Survey expected June sales of 4.20 million units.
Haver
July 20, 2023
The U.S. Leading Economic Index (LEI) fell 0.7% m/m in June after a slightly upwardly revised 0.6% monthly decline in May (initially -0.7% m/m). A 0.6% m/m decline in June had been expected by the Action Economics Forecast Survey. The June LEI at 106.1 was the lowest level since July 2020. This was the fifteenth consecutive monthly decline for the index.
Financial Times
July 24, 2023
The eurozone’s economy faced a downturn at the beginning of Q3 as the flash eurozone composite purchasing managers’ index fell to an eight-month low, signaling a potential recession after two quarters of mild contraction. Economists anticipate the European Central Bank to halt its rate increases to address stubbornly high inflation as the region’s economic outlook weakens.
Capital Economics
July 20, 2023
There is little doubt that the ECB will raise its deposit rate by a further 25bp this week, to 3.75%. The September decision will be a much closer call, but we think another 25bp then is most likely. Beyond that, the ECB will keep the deposit rate at or close to 4% until the second half of next year before beginning to loosen policy. Meanwhile, more hawkish policymakers will probably make the case for faster progress in shrinking the balance sheet.
Capital Economics
July 21, 2023
After making life more difficult for many private firms in recent years, China’s leadership is shifting course and has made high-level pledges to improve the business environment. But although parts of the service sector would benefit from a more supportive official stance, much of the current caution among private firms reflects wider economic headwinds against which regulatory tweaks are of limited use.
The WSJ
July 19, 2023
After declining roughly 5% against the dollar during the first half of the year, the yen staged a sharp recovery in July, gaining more than 4% against the US currency. The rally is attributed to the contrasting monetary policies of the Bank of Japan and the Federal Reserve.
Weekly Speculator/ Barron’s
July 24, 2023
“Liquidity continues to be ample, despite the supposed quantitative tightening pursued by the Federal Reserve Bank. This is partly due to the emergency injections into the regional banking system made last March, but also because the massive sums dumped into the Fed’s repo facility during Covid are starting to be drawn down and used to purchase the very large issuance of short-term Treasuries that has followed the end of the debt-ceiling standoff.”
Capital Economics
July 21,2023
The Fed is almost certain to hike its policy rate by 25bp to between 5.25% and 5.50% at this week’s FOMC meeting, but we increasingly believe that will prove to be the peak. Despite the ‘higher for longer’ rhetoric from officials, a more marked decline in core inflation and easing in labor market conditions in the second half of this year will eventually persuade the Fed to pivot and cut rates aggressively next year.
Financial Times
July 24, 2023
The US’ $1.4 trillion corporate loan market is grappling with a surge of downgrades, the largest since the depths of the Covid crisis in 2020, as businesses burdened with floating-rate debt are strained by increasing borrowing costs. In the second quarter of this year, US junk loan downgrades reached 120, totaling $136 billion – the highest figure in three years, leading to concerns over the ability of heavily indebted companies to repay lenders in a higher interest rate environment.