Consumer Spending Falls In July
After starting the week well, equity markets look set to close it off on a strong footing. European markets were shaky, after August euro area consumer price figures pointed to disinflation across the currency bloc.
Friday, August 29, 2014 - 00:00
Markets in New York have followed a similar pattern in early morning trading.
The S&P 500 rose slightly after the opening bell, climbing 2.99 points, or 0.15% to 1999.73. Market commentators have fixated on the 2000 benchmark since it was first crossed earlier this week, and will no doubt be keen to see whether it ends the week above or below that easily digestible number. Anything to the upside may be interpreted as a sign that this year’s market rise has legs in it yet. The Dow Jones Industrial Average was up 0.04%, or 7.64 points, to 17,087.21.
Domestic indicators, released this morning, pointed to some economic weakness at the beginning of Q3, after Q2’s 4.2% rise in economic output. Personal income rose 0.2% in July (Consensus: 0.3%), while spending fell 0.1% (Consensus: 0.3%), marking the first decline since January. The discrepancy led to a 0.3 percentage point increase in the savings rate to 5.7%, indicating a degree of caution on the part of some Americans. A separate survey pointed to a rosier outlook for consumers this month. The University of Michigan’s August consumer confidence survey rose 0.7 points to 82.5 after a preliminary 79.2 figure.
Continued improvement stateside contrasts with the situation in the euro area, where policymakers battle the dual threat of low inflation and high unemployment. Figures today showed that consumer prices rose by just 0.3% in the twelve months to August. Prices are falling outright in several periphery economies, including Italy, where annual inflation dropped below 0% to -0.1% for the first time since 1959. Separately, the euro area unemployment rate held steady at 11.5% in July. This figure was 23.2% for those under 25. The data will add pressure on the European Central Bank (ECB) to announce further stimulus measures after its Governing Council meets next week.
Traders will focus on developments in Frankfurt. Any disappointment may cause international jitters in financial markets. Fluctuation in currency markets today suggested market participants are unsure what the ECB may deliver. EUR/USD declined upon release of the inflation data, before rising thereafter. By 09:30am in New York, it was down again, by a small amount, at 1.3128. It was broadly flat against sterling. Next week’s decision, as well as the press conference that follows it, will no doubt be pencilled in as ‘must-watch’ events by currency traders.
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