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U.S. Economic and Market Highlights

THE ECONOMY

• The global economic outlook presents a mixed bag of steady progress and emerging risks. The U.S. and Europe are cautiously optimistic about rate cuts, while Asia (especially China) faces challenges in maintaining growth.

• The Fed and ECB are expected to cut interest rates in September due to cooling inflation towards the 2% inflation target. This will be the second rate cut by the ECB and first by the Fed since rates were adjusted upward in November 2021 to try to contain the rising inflation trend at that time.

• The Consumer Price Index (CPI) in the U.S. dipped in June, bringing the annual rate down to 3%, the lowest in over three years. A drop in gasoline prices helped contain inflation for the month, offsetting increases in food and shelter prices.

• Last week, the dollar took its biggest drop of the year following a soft jobs report, leading to concerns of a slowing U.S. economy. The market sold off in part over concerns that the Fed is behind the curve in its interest rate policy meant to support the economy.

• Investment in the US and Eurozone remains underwhelming post-pandemic despite demands from the defense industry, energy transition, and tight labor markets.

• Since the beginning of the year moderate economic growth continued. However, recent U.S. economic data have been below economists’ estimates to a degree not seen in several years. (See trend below including ISM manufacturing, services, and other data).

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U.S. Economic and Market Highlights

The Economy:

• The European Central Bank and Bank of Canada reduced rates by 0.25% in June while the Federal Reserve held steady and suggested a rate reduction later in the year.
• Central Bank interest rate decisions are being made to balance inflationary pressures with slower economic growth trends in the next step in the process to unwind higher interest rates that were initiated over the last two years. 
• The U.S. inflation rate fell to 3.3% in May. Core CPI, which strips out changes for food and energy prices, hit 3.4%, below expectations. This positive report boosted the stock and bond markets, as well as the U.S. Dollar compared to other currencies.
• GDP Growth rates around the world have been moderate and slowing due to higher interest rates, slower consumer spending, and higher geopolitical anxiety over conflict zones and this year’s elections. Global GDP growth is projected at 3.1% in 2024, with emerging markets expected to grow faster than developed markets.
• Existing home sales were at their lowest in 30 years last month because of higher mortgage rates. The pace of home price appreciation also slowed to what is estimated to be 3.8% in 2024.
• The U.S. and Eurozone leaders announced more tariffs on goods made in China to stimulate a diversification of supply chains to other countries for products such as industrial products (steel and aluminum), semiconductors, electric vehicles, solar cells, and medical products. Vietnam, Indonesia, and India are countries who will likely benefit from this supply chain diversification. 

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U.S. Economic and Market Highlights

The Economy

• Annual inflation in the U.S. ticked higher in March and underlying price pressures remained stubbornly strong (CPI +3.5%), raising further questions about how much the Federal Reserve will be able to cut interest rates this year.

• At the end of 2023, investors expected monetary easing as soon as the spring, with a total of five to six rate cuts for the full calendar year of 2024. That forecast now sits at less than three, and investors currently anticipate a less than 50% chance of a rate cut in the U.S. in June.

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