![]() Rather than the rate decision, the market will watch the Fed’s latest forecasts as it updates the Summary of Economic Projections (SEP). The key issues include the ongoing growth acceleration, which is inconsistent with slowing inflation, and the ongoing rally in energy prices. What should we expect from the September SEP? The Fed meets Wednesday with the probability of remaining on hold at 98%. The consumers have now adjusted to an excessive “higher for longer” interest rates and are willing to purchase or rent what they can afford.’ What to Watch ‘The current housing market is generally defined by a very short supply of affordable products and strong demand for affordable products. The summary from the earnings call was that demand continues to outstrip supply and consumers have broadly adjusted to higher rates: Gross margins on home sales also beat expectations at 24.4% versus expectations of 23.7%. ![]() ![]() New home deliveries rose 8%, and new home orders of 19.7k, versus expectations of around 18.7k. US homebuilder Lennar reported on Friday and beat EPS estimates by earning $3.91 a share, versus expectations of around $3.51. US housing market surviving higher rates (for now). The market continues to price four cuts in 2024. The OIS-based estimate of the December 2023 FFR was roughly unchanged on the day at 5.45%, while the December 2024 estimate fell about 7bps to 4.42%. However, it only had a limited market impact. Inflation accelerated across all broad categories, except OER, which nevertheless stayed near 0.4% MoM. By contrast, headline MoM and core YoY aligned with consensus at 0.6% and 4.3% respectively. August CPI was broadly above expectations: headline YoY was 3.7% vs 3.6% consensus, and core MoM was 0.3% vs. US inflation data was stronger on higher oil prices. We think their forecasts, particularly around core inflation, will be too low, which means further hikes will be required. Despite this, the EUR/USD ended the week lower even as Bund yields rose. Probabilities of a hike were around 20% the week before but neared 60% on the day before. ‘The Governing Council will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction’. ‘Key ECB interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target.’ Growth forecasts, however, were revised lower, with the ECB expecting just 1% growth in 2024. They also increased their interest rate forecasts for this year and next, driven by higher energy prices. The ECB hiked by 25bps as Henry had expected for some time. Last Week’s HighlightsĮCB pulled off a dovish hike, but we see more to come. We standardise WoW price changes across different markets to allow for cross-market comparisons. Sign-up to receive world-class macro analysis with a daily curated newsletter, podcast, original content from award-winning researchers, cross market strategy, equity insights, trade ideas, crypto flow frameworks, academic paper summaries, explanation and analysis of market-moving events, community investor chat room, and more. This article is only available to Macro Hive subscribers. We standardise WoW price changes across different markets to allow for cross-market comparisons.ĮCB pulled off a dovish hike, but we see more to come.
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