US GDP growth was much stronger than expected at 2.8% q/q annualized in Q2. The median forecast was for 2.0% growth, up from 1.4% in Q1. Personal consumption was also firmer than expected at 2.3% in Q2, up from 1.5% in Q1, suggesting that consumers remain resilient even as inflation and higher borrowing costs have eroded purchasing power. However, core PCE inflation, the Fed’s preferred inflation measure, was also higher than forecast at 2.9% in Q2, but markedly lower than the Q1 reading of 3.7%. Separately, durable goods orders fell -6.6% m/m in June, but this was due to lower aircraft orders, with investment in business equipment (both machinery and computers/ electronics) rising at a faster pace in June relative to the prior three months. Overall, the preliminary GDP data supports our view that the Fed is likely to keep rates on hold next week, with September the likely start of the easing cycle.
Germany’s IFO business climate index declined unexpectedly to 87.0 in July, with weakness both in the current conditions component as well as in expectations. The IFO data follows the disappointingly soft manufacturing PMI reading for Germany released on Wednesday. Weak demand from China has weighed on Germany’s export-oriented industry, although a recovery is still expected in H2 2024.
Key Economic Data and events
16:30 US personal income (Jun) forecast 0.4% m/m
16:30 US personal spending (Jun) forecast 0.3% m/m
18:00 University of Michigan consumer sentiment (prelim, Jul) forecast 66.4
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