Softer U.S. Inflation Fuels Speculation Over Fed Rate Cut in September
This week, softer-than-expected U.S. inflation data has increased the likelihood of an interest rate cut by the Federal Reserve at its upcoming meeting in September. If this happens, it would mark the first reduction in rates in over four years. However, the size of the initial cut remains uncertain.
Wall Street initially pushed for an aggressive 50-basis-point cut following a weak July nonfarm payrolls report earlier this month. However, this week’s strong retail sales data suggests the U.S. economy is performing better than anticipated, making a smaller 25-basis-point cut more likely.
Next week, all eyes will be on Fed Chairman Jerome Powell as he speaks at the annual central bank symposium in Jackson Hole, Wyoming. Economists at UBS expect Powell to signal a more moderate approach, downplaying the prospect of a larger cut. UBS economists noted in a statement, “We expect Chair Powell will lay out a case for an orderly withdrawal of monetary policy restrictiveness, and by orderly, we mean 25 bp rate cuts, rather than 50 bp.”
UBS also predicts three 25-basis-point rate cuts this year, one each at the September, November, and December FOMC meetings. This outlook reflects a consensus that the Fed’s current policy stance is restrictive in light of slowing economic growth.
The Fed has maintained its benchmark overnight interest rate within the 5.25%-5.50% range since July of last year, after raising rates by 525 basis points since 2022.
Futures Point Higher as Wall Street Heads for Strong Weekly Gains
U.S. stock futures edged higher Friday, setting the stage for a winning week on Wall Street as optimism grows over the strength of the U.S. economy. As of 03:50 ET (07:50 GMT), Dow futures were up by 34 points (0.1%), S&P 500 futures rose 8 points (0.2%), and Nasdaq 100 futures gained 70 points (0.4%).
On Thursday, Wall Street’s major indices closed with strong gains, driven by better-than-expected retail sales and a drop in weekly jobless claims. These indicators suggest that earlier fears of a recession may have been overstated.
With the S&P 500 poised for a weekly gain of over 3% and the Nasdaq Composite looking to close the week up by more than 5%, this could be the strongest performance for both indices since November. The blue-chip Dow Jones Industrial Average has climbed more than 2% this week, marking its best performance of the year.
Kroger Sweetens Albertsons Merger Deal Amid Antitrust Concerns
Kroger (NYSE: KR) is making moves to sweeten its proposed $25 billion merger with Albertsons (NYSE: ACI), pledging to lower grocery prices by $1 billion following the deal’s completion. The supermarket chain first announced the merger in October 2022, aiming to create a grocery giant with over 4,000 stores.
However, the deal has faced a series of antitrust lawsuits, with concerns that it could drive up grocery prices. The merger was temporarily halted last month, pending a ruling from a Colorado District Court on one of the lawsuits. The trial is set to begin on September 30.
Kroger had initially promised to lower prices by $500 million at Albertsons locations, but the company has now doubled that commitment in an effort to address concerns over the deal.
UK Retail Sales Rebound in July, Adding to Bank of England Rate Cut Debate
Retail sales in the U.K. rebounded in July, rising 0.5% from the previous month and 1.4% year-on-year, according to the Office for National Statistics. This marks a recovery from June’s 0.9% monthly decline and adds to the debate over the Bank of England’s next move on interest rates.
The Bank of England made its first rate cut this month after holding rates at a 16-year high, but future cuts remain uncertain. Inflation was back at its 2% target in May and June, and wage growth outpaced inflation by the largest margin since mid-2021 during the second quarter. Additionally, consumer confidence in the U.K. rose to its highest level in nearly three years last month, while the economy grew by 0.6% in the second quarter, signaling a cautious rebound from recession.
Crude Oil Prices Slip But Remain On Track for Weekly Gains
Crude oil prices edged lower on Friday but remained on track for a positive week, supported by signs of economic resilience in the U.S., the world’s largest oil consumer. As of 03:50 ET, U.S. crude futures (WTI) dropped 0.5% to $77.79 a barrel, while Brent crude futures fell 0.3% to $80.77 a barrel.
Both benchmarks are on course for weekly gains of more than 1%, marking their second consecutive winning week. Strong U.S. economic data, including robust retail sales and cooling inflation, has fueled optimism over future fuel demand. Additionally, heightened geopolitical risks, particularly fears of an Iranian strike against Israel, have kept a risk premium in the oil market
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