June CPI to be Released on 26th
Q2 Core PCE Inflation Expected Below 2%
Q2 GDP Growth Forecasted at 1.9%
Interest Rate Futures Market Reflects 98% Probability of September Cut
This week, the June Personal Consumption Expenditures (PCE) price index and the second-quarter Gross Domestic Product (GDP) growth rate, which will support the Federal Reserve's (Fed) groundwork for a rate cut in September, will be released. These are key indicators to gauge whether the U.S. economy is achieving a soft landing. Earnings reports from big tech companies such as Alphabet, Google's parent company, and Tesla will also be released one after another.
According to the U.S. Department of Commerce on the 21st (local time), the June PCE price index will be released on the 26th.
The core PCE price index, which excludes volatile food and energy prices, is expected to have risen by 0.1% month-over-month. Accordingly, the second-quarter core PCE inflation rate is expected to fall below the Fed's target of 2%.
The Consumer Price Index (CPI), released earlier, has continued to slow down in the second quarter. It decreased from 3.5% in March to 3.4% in April, 3.3% in May, and 3% in June. The June PCE inflation data to be released this week is also expected to reinforce the Fed's confidence in declining inflation, which Fed Chair Jerome Powell and other officials have repeatedly emphasized.
One day before the PCE inflation release, on the 25th, the preliminary estimate of this year's second-quarter GDP growth rate will be announced. The market expects the GDP growth rate to record an annualized 1.9% quarter-over-quarter. It was 1.4% in the first quarter. If the second-quarter growth rate is around 2%, the soft landing outlook is expected to gain more momentum.
The market anticipates a rate cut at the September Federal Open Market Committee (FOMC) meeting due to signs of declining inflation, cooling labor market, and slowing growth. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds futures market currently reflects a 98.1% probability that the Fed will cut rates by at least 0.25 percentage points at the September FOMC.
Anna Wong, an economist at Bloomberg Economics (BE), analyzed, "The June core PCE inflation rate, preferred by the Fed, is highly likely to align with the 2% target, which would be encouraging news for the Fed. With the labor market cooling and the growth rate of personal income slowing, consumers are becoming more discerning in their spending, setting the stage for a rate cut in September."
Additionally, this week, major big tech companies such as Alphabet, Tesla, and IBM will report their earnings. Next week, other Magnificent Seven companies like Microsoft (MS) and Apple will follow with their earnings releases. Last week, the 'Trump Trade' accelerated due to increased prospects of former President Donald Trump's election following an assassination attempt, leading to a rotation from tech stocks to traditional blue-chip and small-to-mid cap stocks. Whether the sharp decline in tech stocks from last week continues or rebounds will depend on the big tech earnings released this week.
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
