The FOMC rate action on July 27 and the first glimpse at Q2 US GDP on the 28th are perhaps the week’s two biggest event risks. This week sees a comeback to impactful US figures.
The FOMC meeting is expected to end in a 75 bps increase in interest rates, which could generally keep the US Dollar backed. Even so, poor PMI data from last week have put some watchers on recession monitoring, so a somewhat aggressive increase could indicate that the economy is awfully close to entering a recession. The end of the week could see heightened volatility.
It was decided to downgrade the initial estimate of US GDP for the second quarter from 0.9% to 0.4% in an attempt to prevent a technical recession, which constitutes negative GDP growth for two successive quarters. In comparison, the Atlanta Fed’s forecasting engine “GDPNow” predicts that growth would fall by 1.6% in Q2. The two statistics’ stark discrepancy indicates that, based on the outlook in the market at the moment, there could be repricing.
Even if a negative Q2 number comes in, as US Treasury Secretary Janet Yellen noted on Sunday, it might not automatically imply the US is in a downturn. At the time being, there is no experience of the broad-based contraction that defines a recession, which has repercussions across many industries.
Furthermore, employment losses have increased throughout previous recessions despite the fact that the US labor market is still extraordinarily robust. According to Yellen, the slowdown in the economy is acceptable for an economy that is stable and sustainable.
WTI crude oil’s negative trend had continued since the European Central Bank (ECB) meeting on July 21, when the US Dollar weakened a bit in reaction to a brief Euro price rise. The rise occurred simultaneously as a retest of the falling trendline, and the price is now testing horizontal support near $93 after completing a full retracement from April.