Next up: August jobs report
Summary
Inflation meets expectations, earnings exceed expectations, and, for the first time in the Fed’s 112-year history, President Trump attempted to fire a sitting governor, prompting lawsuits and a restraining order. Trump also dismissed CDC director Susan Monarez for "reckless directives," leading to the resignation of at least four top agency officials.
The S&P 500 reached a record level on Thursday before declining on Friday, resulting in a net weekly change of -0.08%. The year-to-date return is 10.8%. The 10-year Treasury yield decreased by 3 basis points to end at 4.23% on Friday.
Economic highlights
The second estimate for Q2 GDP was adjusted upward to 3.3% from the initial 3.0% figure, reflecting higher consumer spending and private investment compared to earlier estimates. Despite the revision, private investment declined at an annual rate of 13.8% during Q2.
Over 98% of S&P 500 companies have reported Q2 results, with 81% surpassing profit forecasts. Walmart and Target exceeded revenue forecasts but fell short on earnings. Analysts observe steady consumer behavior, with a shift towards cheaper items. More price changes are expected as tariffs take effect.
Secured Overnight Financing Rate (SOFR)
Published by the NY Fed, SOFR is an overnight, nearly risk-free rate based on transactions in the U.S. general collateral and bilateral cleared repurchase (repo) markets.
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EURIBOR
EURIBOR is an interbank lending rate that is averaged from reports by a panel of banks seeking unsecured Euro-denominated loans in the short-term money market. The EURIBOR index is the adjustable interest rate referenced on approximately EUR 150 trillion of debt and derivatives.
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PCE
The July Personal Consumption Expenditures (PCE) inflation data released on Friday matched expectations, with headline PCE up 2.6% year-over-year, unchanged from June. Core PCE, excluding food and energy, increased 2.9% from last year and 0.3% from the previous month, marking its highest level since February.
The data gives a mixed signal for the Federal Reserve, showing steady headline figures but a slight rise in core inflation. Market expectations for a 25-bps rate cut in September rose 2% over the week to an 87% probability in the next FOMC meeting.
Week ahead
The focus now shifts to Friday’s jobs report, which will be a critical piece of the puzzle for the Fed's decision-making process. The July jobs report showed just 73,000 jobs added in the month. A soft or below-average number of new jobs would reinforce the view that the labor market is losing steam, which could justify a rate cut. The Fed will also be looking at the unemployment rate, which most analysts expect to tick up to 4.3% as well as signs of slowing wage growth.
Disclaimers
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