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WHAT'S HAPPENING IN THE US

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The Week Ahead ...
The Week Ahead

Mon 2 Sept-Public Holiday (Labour Day).

13:30 Tues 3 Sept-Leading Indicators (July). The index of leading indicators, designed to forecast economic trends six to nine months ahead, rose by 0.5% in June, following 0.2% growth in June. The consensus expects a more modest 0.1% rise in July.

15:00 Tues 3 Sept-Purchasing Manager's Index (Aug). In July the index was down sharply, from 54.3% to 50.2%, suggesting that the pace of manufacturing activity has slowed. Delivery times also shortened suggesting capacity constraints eased. A modest bounce to about 51.5% is expected. Anything stronger will cause further jitters in financial markets.

13:30 Fri 6 Sept-Non-farm Payrolls/Unemployment Rate/Average Hourly Earnings (Aug). The market is looking for a fairly strong number on non-farm payrolls (250,000- 275,000). The unemployment rate is expected to remain unchanged at 5.4%.

The Week Just Past

The Conference Board Confidence Index reached a six year high in August, rising 2.4 points to 109.4. There was a significant improvement in consumer sentiment, both about current business conditions and expectations for the coming six months.

US GDP grew more strongly than previously estimated during the second quarter, expanding at an annual rate of 4.8%, an upward revision from 4.2%. The improved picture reflected a downward revision to the trade deficit, in addition to better than expected investment growth. However, there was also a alight slowing in consumer and capital spending.

This latest GDP report gave no indication of inflationary pressures building. The implicit price deflator advanced at an annual rate of only 1.8% in the second quarter, down from 2.2% in the first quarter.

New home sales were stronger than expected in July, almost 8% higher than in June. 783,000 single-family homes were sold, (at an annual rate). Wall St economists had expected a figure of about 728,000. July is the seventh consecutive month in which sales have been above 700,000.

Commentary

Stronger US data this week has fuelled renewed fears that the Federal Reserve may soon have to raise interest rates in a pre-emptive move against future inflation.

US and European stock and bond markets were hit by the surprise upward revision to GDP data-the yield on the benchmark Treasury long bond rose above 7% for the first time since the end of July.

There was also concern that new home sales could be at their highest level for five months despite mortgage rates of over 8%.

The next FOMC meeting will be held on 24 September, and one of the most important data releases prior to this will be August's nonfarm payrolls, published this coming Friday. Higher than expected job creation last month will further increase the speculation of a rate rise before the US presidential election in November.

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