The main focus in the August personal income and spending report is the core PCE deflator, which the Federal Reserve tends to favour as the gauge to watch for underlying price pressures in the US economy. The 0.1% month-on-month outcome is better than the consensus forecast of 0.2% and when measured to 2 decimal places it is 0.13%, below the 0.17% MoM threshold (black line in the chart below) that if repeated over 12 months would generate the targeted 2% year-on-year inflation.

The YoY rate ticked up to 2.7%, but it should drop back again next month before holding in the mid-2% area through to year-end given the tough comparisons with last year, when MoM readings averaged 0.14% over the final three months of the year. Nonetheless, it should plunge through first quarter 2025 as a series of 0.3% and 0.4% MoM prints drop out of the annual comparison. In any case the Fed is more interested in the monthly run rate, which looks benign, with the three-month annualised rate at around 2%. This gives them complete flexibility on interest rate policy. Instead it is going to be the jobs data that determines the speed and scale of rate cuts over coming months. (ING - Continue Reading)

Israel said its military struck Hezbollah’s headquarters in southern Beirut in the heaviest attack on the Lebanese capital in almost two decades, a major escalation of hostilities.

The Israel Defense Forces carried out a “precise strike” on the central command center of the Iran-backed militant group on Friday, spokesman Daniel Hagari said in a video statement. The offices were located under residential buildings, he said. (Bloomberg - Continue Reading)

Major brokerages, including Goldman Sachs and JPMorgan, now expect the European Central Bank to deliver a quarter-point cut at its Oct. 17 meeting, revising their forecasts on Friday on recent data showing economic weakness and slowing inflation.

Market pricing now reflects around an 80% chance of such a rate cut, which would follow reductions at the ECB's June and September meetings, as the data pushes policy makers to focus more on growth and less on price pressures. (Reuters - Continue Reading)