Title: US Economy Update: Soft Landing Ahead as Data Shows Positive Trends
US data released last Thursday and Friday painted a positive picture for the US economy, with core inflation easing, 1-year inflation expectations decreasing, 2nd quarter GDP being revised higher, and personal spending on the rise. This suggests that the US economy is on track for a soft landing, in line with our prediction of a gradual pace of Fed cuts, starting with a 50bps cut in September, according to OCBC’s FX analyst Christopher Wong.
Three scenarios exist for US data
As we look ahead to a busy week of US labor market-related releases, including ISM employment data, JOLTs job openings, ADP employment, ISM services employment, and the highly anticipated US payrolls report, market sensitivity to the USD may increase. With markets already pricing in a dovish outcome for the Fed this year, data interpretation may be challenging.
We have identified three possible scenarios based on the upcoming data releases. If the US data exceeds expectations, we may see US equities rally, the USD strengthen, and dovish Fed cut expectations unwind. Conversely, if the data falls short of expectations, the soft-landing view may be called into question, leading to a potential sell-off in US equities. However, if the data aligns with estimates, it will further support the soft landing narrative.
Analysis:
In summary, the recent US data releases point towards a soft landing for the US economy, with positive trends in core inflation, GDP growth, and personal spending. As investors prepare for a busy week of labor market-related data releases, the outcomes could have significant implications for US equities, the USD, and Fed cut expectations. By understanding the three potential scenarios and monitoring key resistance and support levels in the market, investors can make informed decisions to navigate the current economic landscape.