US Economy Slows Down as Market Predictions Point Toward an End to Rate-Hike Era

Recent statistics suggest the US economy’s growth rate has decelerated more than initially forecasted for the second quarter. This development has market experts speculating if the Federal Reserve is nearing the conclusion of its rate-increase period. Following this news, there was a noticeable decline in the two-year Treasury yields and the dollar index.

S&P 500 and Nasdaq 100 futures demonstrated instability post the revised GDP announcement. Furthermore, recent reports indicate a reduced job addition by US companies, the lowest since March, hinting at a waning demand for labor. In corporate updates, HP Inc. saw a nearly 10% drop during early trading due to the revision of its annual financial forecasts. After some surprisingly weak job and consumer sentiment data on Tuesday, the S&P 500 experienced its largest surge since June, stirring optimism that the Federal Reserve might soon halt its monetary tightening.

In European markets, bond and stock prices declined after fresh data indicated persisting inflation concerns. German 10-year bond yields saw a notable jump after an uptick in inflation in multiple German states. Spain’s inflation rates also experienced a surge. On the corporate front, Orsted A/S stock plummeted following a forecast of potential financial setbacks related to its US operations. Conversely, Prudential Plc enjoyed a more than 4% boost after announcing an increase in new business profits.

Amidst this backdrop, the recent inflation numbers from Germany and Spain create complexities for European regulators as they gear up for the upcoming rates review in September. Present market projections suggest a 50-50 chance of a 0.25% hike by the European Central Bank. Additionally, the euro area’s economic optimism metrics for this month have underperformed market expectations.

Asian markets portrayed a mixed image. While the MSCI Asia Pacific Index retracted from its high points, other benchmarks, like the Hang Seng Index, saw a rise. This boost was attributed to news of Chinese state-run banks contemplating rate reductions for a large portion of active mortgages and deposit schemes. In other market updates, the cryptocurrency sector showed a downward trend, despite Bitcoin’s recent 6% spike due to prospective US legal developments. The commodity market saw West Texas Intermediate crude prices rising, while gold remained stable amid speculation of the Federal Reserve easing its rate hikes.

Upcoming Key Market Events:

Thursday: Manufacturing and non-manufacturing PMI announcements from China, industrial output and retail sales data from Japan, Eurozone’s CPI and unemployment data, ECB’s July monetary policy meeting report, US personal expenditure, income, and initial jobless claim data.

Friday: Caixin manufacturing PMI from China, Eurozone’s manufacturing PMI data, and prominent speakers, including officials from South African central bank, Atlanta Fed, BOE, and IMF, at the South African Reserve Bank conference. Additionally, Boston Fed President Susan Collins is set to speak at a virtual event. US will also release its unemployment, nonfarm payroll, vehicle sales, and other economic data.

Current Market Movement Highlights:

• Stocks: S&P 500, Nasdaq 100, and Dow Jones Industrial Average futures remained largely static. The MSCI World index experienced a 0.3% growth.
• Currencies: Bloomberg Dollar Spot Index went down by 0.2%, while the euro and the British pound showed growth.
• Cryptocurrencies: Bitcoin and Ether both observed a minor decrease in value.
• Bonds: Yield on 10-year Treasuries fell by two basis points, with slight changes observed in German and British yields.
• Commodities: West Texas Intermediate crude and gold futures both saw a rise in prices.