The Fed’s Preferred Inflation Gauge is Expected to Rise in July

Rates trade within a tight range ahead of inflation day. Rates closed little changed today despite GDP and personal consumption expenditures (PCE) price index data that could have spurred a volatile session. Rates rose 2-3bps across the curve, ending the day ~5bps above session lows. Attention is now geared toward tomorrow’s broader PCE slate, where core PCE is expected to rise 0.1% year-over-year.  Elsewhere, Nvidia fell nearly 6.5% today after yesterday’s after-hours earnings call, though most of the Magnificent Seven rallied while the DJIA hit an all-time high.

US economic growth exceeds forecasts. The second estimate of 2Q24 US GDP (released today) showed growth was revised up to 3.0% from 2.8% initially. This marks more than double Q1 growth of 1.4%, fueled by strong consumer spending and business investment. Consumer spending estimates also climbed from 2.3% to 2.9%, a surprise given surveys expected a slight decline to 2.2%. Comerica chief economist Bill Adams said, “Solid growth of consumer spending propelled the economy forward in the second quarter, and the increase of consumer confidence in July suggests it will propel growth in the second half of the year as well.”

German inflation further boosts ECB rate cut odds in August. According to preliminary figures, German inflation slowed to 2% in August, a significant decrease from 2.6% in July. The data marked the slowest rate of consumer price growth since February 2021, a significant milestone for the Eurozone’s largest economy. Spain showed progress against inflation as well, now at a 1-year low of 2.4%. Odds of a 25bp rate cut at the ECB’s policy meeting in August are now over 100%.