US consumer confidence hits 17 month high

• US consumer confidence hit a 17-month high in July, with the Conference Board saying its consumer confidence index rose to 129.1 from 128.9 in June. The data suggests US households' spending plans continued to rise despite concerns over higher inflation, potentially boding well for early growth dynamics in the third quarter. The data also showed consumers' inflation expectations over the next 12 months dipped to 6.6% from 6.7% last month. The survey's labour market differential, derived from data on respondents' views on whether jobs are plentiful or hard to get, was up to 44.4 in July from 44.2 in June, and the highest level since the year 2000.

• US core capital goods orders a closely watched proxy for business spending plans, rose 0.5% m/m in June after gaining 0.5% m/m in May, while shipments of core capital goods, which are used to calculate equipment spending as part of the US GDP calculations, were up 0.6% m/m in June after an 0.9% m/m rise in May. Manufacturing, which accounts for 11.9% of US GDP, benefited from a boom of business investment in equipment, as consumers spent more on goods than on services during the pandemic. Meanwhile, orders for durable goods advanced 0.8% m/m in June, held back by weak orders for motor vehicles and parts, after rebounding 3.2% m/m in May. Automotive manufacturing has been hit by a global semiconductor chip shortage.

• The International Monetary Fund in an update to its World Economic Outlook, maintained its 6% global growth forecast for 2021, pushing up its outlook for the US and other wealthy economies but trimming estimates for developing countries facing surging Covid-19 infections. The delta is access to Covid-19 vaccines and strong fiscal support in advanced economies, while emerging markets face difficulties on both fronts. The IMF lifted 2022 global growth forecast to 4.9%, up 0.5% from April. The IMF's chief economist Gita Gopinath highlighted the contrasts, saying 40% of the population in advanced economies has been fully vaccinated, compared with 11% in emerging market economies, and a tiny fraction in low-income developing countries. The fund raised its forecasts for the United States, which it now expects to grow at 7.0% in 2021 and 4.9% in 2022, up by 0.6% and 1.4% from earlier estimates. The fund also lifted 2021 forecast for the UK by 1.7%, its biggest upgrade, while the euro zone saw a smaller 0.2% upgrade for 2021, and Japan saw a 0.5% cut. India saw the biggest cut in its growth forecast, down by 3% to 9.5% for 2021, while China was cut by 0.3% for the year. The Middle East and Central Asia was revised up to 4.0% in 2021 from 3.7% earlier while 2022 growth remained almost the same at 3.7% against 3.8% earlier. The fund forecast that emerging Asia would grow 7.5% this year, down 1.1 %from the April forecast. The IMF pointed that downside risks remain significant globally, including the potential for new, highly contagious coronavirus variants to lead to new restrictions on movement and weakened economic activity.

Today’s Economic Data and Events

• 16:30 CA Core CPI (MoM) (Jun) Forecast 0.40%          
• 18:30 US Crude Oil Inventories Forecast 2.108M
• 22:00 US FOMC Statement                   
• 22:00 US Fed Interest Rate Decision Forecast 0.25%
• 22:30 US FOMC Press Conference                                    

Fixed Income

• Rates markets will focus on the outcome of today’s FOMC meeting where no policy change is expected but messaging around how the Fed will bring an end to asset purchases and how they describe the drop in yields will be under scrutiny. Yields at the near end of the curve edged higher in anticipation of the Fed with 2yr UST yields up almost 1bp to 0.2035% while 10yr yields came off by almost 5bps to 1.2411%.
• European bonds saw a roughly similar move with longer-term yields dropping more than short-term yields. Bund yields slipped to -0.442% on the 10yr while gilts closed at 0.557% on the 10yr yield.
• Movement in emerging market bonds was relatively muted. Both Indian and South African yields closed relatively unchanged at 6.178% and 9.228% respectively while Turkish 10yr yields edged up a bit more than 2bps to 16.965%.
• Fitch affirmed its rating on Saudi Aramco at ‘A’ and revised the rating’s outlook to stable from negative. Fitch also affirmed Sabic at ‘A’ and revised its outlook to stable from negative.

FX

• The dollar extended its losses overnight ahead of today’s conclusion of the Fed meeting. The DXY index fell 0.23% to 92.432 and we’d expect it to be trading sideways ahead of the Fed later this evening. Gains in other currency pairs were widespread with both EURUSD and GBPUSD rising and USDJPY slipping. Near-term moves could be unwound quickly following the FOMC although widening anxiety in the US over the spread of the delta variant of Coivd-19 could threaten Q3-Q4 growth expectations.
• Commodity currencies were weaker across the board with USDCAD rising 0.4% to 1.2602, AUD slipping by 0.3% to 0.7632 and NZD off by nearly 0.7% at 0.6956.

Equities

• Moves by Chinese regulators, this time against the private tutoring sector, continued to drive the Shanghai Composite lower yesterday. The index fell -2.5%, and is now down -5.5% over the week despite currently trading flat in early morning trading. In Japan, the Nikkei is down -1.2% as Covid-19 cases spike there, and warnings regarding the global recovery by the IMF have weighed on global sentiment generally.
• Some of the exuberance left the US stock market yesterday despite some more strong earnings reports as firms warned about potential supply chain issues in the coming quarters, durable goods orders disappointed, and events in China’s equity markets weighed on global sentiment. All three benchmark US indices dipped off the record highs recorded earlier, with the NASDAQ the biggest loser at -1.2%. The Dow Jones and the S&P 500 lost a more muted -0.2% and -0.5% respectively.
• In Europe, the CAC lost -0.7%, the DAX -0.6% and the FTSE 100 -0.4%. Within the region, the DFM gained 0.1% and the Tadawul 0.2%.

Commodities

• Oil prices were mixed overnight but have generally reversed those moves in early trade today. Brent futures are holding around USD 74.80/b while WTI is edging up above US 72/b. The API reported a draw in crude stocks of more than 4.7m bbl last week along with a healthy drawdown in gasoline stocks. EIA data will be released later this evening.

Click here to download charts and tables