a2873dd348b6497a8d8f56a5911240c8067ac562fd69a3cb5cfcff1456c6e285;;[{"layout":"linklist","uid":3094,"publicationDate":"25 Jul 16:45","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2024_186794.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJN88F_C_5eQPEdaRJM-35eE=&T=1&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Data Comment - US: Strong GDP growth in 2Q, but it\u00b4s unlikely to last ","product":"Data Comment","synopsis":"<p class=\"ucrIndent\"><\/p><\/p><p><ul class=\"ucrBullets\"><li>The US economy grew a stronger-than-expected 2.8% qoq annualized (0.7% non-annualized) in 2Q24. It marks a pick-up from the 1.4% annualized growth in 1Q24. Taken together, growth in 1H24 was 2.1% annualized, which is roughly in line with most estimates of potential, but down from the rapid 4.1% annualized growth in 2H23. A measure of underlying GDP growth, which removes the effects of volatile net exports and inventories, rose a strong 2.7%. However, as we will explain below, growth is likely to slow in 2H24.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>The main engine of growth in 2Q24 was again real personal consumption, which rose 2.3% annualized and contributed 1.6pp to GDP growth given its large share in GDP (68%). Spending on goods rebounded, recovering its loss in 1Q24, driven by durables and particularly motor vehicles. Spending on services continued to rise solidly. Strong consumption was driven by a further fall in the personal savings rate, to a historically low 3.5% from 3.8%, as real personal disposable income growth slowed to just 1.0% annualized from 1.3%. We expect consumption growth to slow in 2H24, as it will likely have to follow more closely the growth rate of disposable income. Most households have now exhausted the savings buffers accumulated during the pandemic and from large fiscal transfers. This is also evident in rising delinquency rates on credit cards and auto loans. Meanwhile, the labor market is slowing, which is driving the slowdown in real disposable income growth. With the unemployment rate steadily rising, it seems likely that households will want to rebuild savings balances, for precautionary reasons.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>Business investment rose a rapid 5.2% annualized, contributing 0.7pp to GDP growth. This was driven by a surge in equipment investment, which rose 11.6% annualized, as well as another strong rise in intellectual property investment. Interestingly, the surge in structures investment over the past couple of years in response to very generous incentives contained in the administration\u2019s 2022 Inflation Reduction Act and 2022 CHIPS and Science Act appears to have faded (structures investment fell in 2Q24). But all these new factories need to be filled with equipment, which likely explains the surge in 2Q. Still, business investment is likely to slow in 2H24, largely due to election-related uncertainty and partly due to rising real interest rates. Residential investment slightly subtracted from GDP growth in 2Q, as ongoing high interest rates has hit demand for new homes.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>Government spending continued to increase strongly, rising 3.1% annualized, with defense spending particularly strong due to financing for Ukraine and Israel. The other, typically volatile, components of GDP, namely net exports and the change in inventories, largely cancelled eachother out in terms of their impact on GDP growth. A large fall in net exports was driven by a 7% surge in imports, which may reflect firms frontloading imports to avoid shipping delays in the Red Sea area as well as actual and potential rises in tariffs. Higher imports contributed to the rise in inventories, particularly retail inventories, which is likely to weigh on GDP growth in 2H24.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>Finally, and perhaps the single most important news in today\u2019s 2Q GDP release, was that the core PCE deflator (the Fed\u2019s preferred measure of inflation) rose 2.9% annualized in 2Q24. This was 0.2pp higher than our and consensus\u2019 expectation, but represents clear progress compared to the 3.7% rise in 1Q24 that ultimately caused the Fed to dial back on the dovish pivot it made in December 2023. The June data will be released tomorrow. If there are no revisions to past data, it would imply a 0.3% mom rise in the core PCE deflator, stronger than our 0.1% forecast. We think revisions to past data may explain part of the miss, but we now expect a 0.2% mom rise for tomorrow\u2019s release of the June data. It would leave the yoy rate unchanged at 2.6%, while the three-month (March-June) annualized rate would fall to 2.2%, not far above the 2% target. This, along with signs that the labor market and economic activity will slow in 2H24, should keep the Fed on course to start cutting rates in September.<\/p><\/li><\/ul><p class=\"ucrIndent\"><p>Chart 1 shows US GDP growth in qoq annualized and yoy terms since 4Q20. Growth was 2.8% qoq annualized in 2Q24, an acceleration from 1.4% annualized growth in 1Q24.<\/p><\/p><p class=\"ucrIndent\"><p><\/p>","hash":"a2873dd348b6497a8d8f56a5911240c8067ac562fd69a3cb5cfcff1456c6e285","available":"0","settings":{"layout":"linklist","size":"default","showanalysts":"-1","showcompanies":"-1","showcountries":"-1","showcurrencies":"-1","nodate":"0","notitle":"0","noproduct":"0","noflags":"0","dateformat":"d M G:i","nolinktitle":"0","synopsislength":"-1","synopsisexpand":"0","shownav":"0","oldestedition":"","limit":"12"}},{"layout":"linklist","uid":3097,"publicationDate":"25 Jul 8:32","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2024_186789.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJN88F_C_5eQPEXAsDqs5P9Q=&T=1&P=1","protectedFileLinkDe":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2024_186790.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJN88F_C_5eQP5lxAhc3Ibt8=&T=1&P=1","protectedFileLinkIt":""},"title":"Markets Today - We expect 2Q US GDP at 1.8%, 2-10s UST and Bund spreads at critical levels","product":"Markets Today","synopsis":"<p class=\"ucrIndent\"><p>Economic data, news &amp; events<\/p><\/p><p><ul class=\"ucrBullets\"><li><strong> PBoC: <\/strong> After having recently cut its seven-day reverse repo rate, in an unscheduled move the PBoC also cut its medium-term lending facility to 2.3% from 2.5%. This is another signal of the central bank\u2019s willingness to support the economy, albeit tentatively.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li><strong> France: <\/strong> INSEE business confidence for July is likely to remain unchanged at 99, just slightly below its long-term average (equal to 100). The Paris Olympics (which are scheduled to start on 26 July) are likely to provide a boost to services sentiment, while we expect industrial sentiment to remain below its long-term average. Weakness in industry continues to weigh on GDP-growth prospects (8:45 CET).<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li><strong> Germany: <\/strong> We expect the Ifo Business Climate Index to rise slightly, to about 89, in July, after it declined in the previous month (to 88.6 from 89.3). Continued-solid growth in global trade, an anticipated recovery in consumer spending and hopes of a further bottoming out in construction activity will probably be the major triggers. Furthermore, the negative effect on sentiment from the possibility of higher Chinese import tariffs on German cars is likely to have fizzled out. The forecast risks are skewed to the downside given further strong rises in shipping costs on routes between China and Europe (10:00 CET).<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li><strong> US: <\/strong> We forecast real GDP rose at an annualized rate of 1.8% (or a non-annualized 0.4%) in 2Q24, with the risks to our forecast skewed to the upside. The main driver of growth was likely personal consumption, which probably rose a solid 2.0% annualized. Other upward contributions likely came from non-residential investment, inventories and government consumption. These were probably partly offset by downward contributions from net exports and residential investment. Firms appear to have ramped up imports to boost inventories, perhaps to circumvent shipping delays and tariff rises. We still expect GDP growth to slow in 2H24 to an annualized rate of about 1%. Also, in focus today will be core PCE inflation for 2Q24, which we expect to print at 2.7% annualized after the spike to 3.7% annualized in 1Q24. (14:30 CET).<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li><strong> ECB: <\/strong> Bundesbank President Joachim Nagel will speak at 13:00 CET and ECB President Christine Lagarde will speak at 17:00 CET.<\/p><\/li><\/ul><p class=\"ucrIndent\"><p>Market news &amp; views<\/p><\/p><p class=\"ucrIndent\"><p>Eurozone PMI readings largely disappointed, although not by an extreme margin. The composite PMI for the eurozone held barely above the 50 threshold (actual reading 50.1) and economic surprise indices saw a further contraction deeper into negative territory. With this, according to money market forwards, the likelihood of a second ECB rate cut in September increased by 12pp to 90% and curves twisted sharply. While the 2Y Bund yield lost 6bp, the 10Y yield rose 1bp to 2.44%. The 10Y BTP yield rose 5bp to 3.79% while the 2Y tenor saw a 1bp gain. USTs bull-steepened, with the 2Y yield losing 6bp and the 10Y yield rising 3bp to 4.28%. At -15bp, the 2-10Y spread in the US is at its least inverted since July 2022. Equity markets were hit following the earnings results from two of the Magnificent Seven that were released after yesterdays close. The S&amp;P 500 declined 2.3%; the Nasdaq composite lost 3.6% and the Euro STOXX 50 dropped 1.1%. Today, markets will have a look into the rear mirror with the release of 2Q24 GDP in the US, which we expect to be in line with US trend growth. It will be exciting to see whether this will trigger a further steepening of the US curve. While the 2-10Y spread in the US closed at its least inverted level in the last two years, the current level of around -15bp was almost hit in October last year and this January and marked temporary peaks back then. In the eurozone, market participants will watch whether the German Ifo business sentiment matches the weak results of the German PMI. In terms of the curve, similar to the US, the 2-10Y spread in Bunds is also at a critical juncture. The current spread is close to -20bp, which has been the turning point back into a deeper inversion several times in 2023 and 2024. A break of these critical levels in USTs and Bunds will serve as confirmation that the steepening trend is likely to continue for quite some time and that a return to a normal curve shape in sight.The weakening market sentiment in the US tech sector and mixed 2Q24 results from corporates are likely to put some pressure on European credit today. Bank equity was weak yesterday, reflecting mixed results reported by some banks. This led to spread widening of bank AT1 bonds, while bank seniors held up well. The banking sector is largely reporting better-than-expected results, while several non-financial companies have cut back on their 2024 guidance.In FX, range-bound activity continues to prevail among major exchange rates and yesterday\u2019s price action was quite telling about the ongoing market behavior. Softer-than-expected preliminary PMI surveys for July across the eurozone initially weighed on EUR-USD, but the single currency failed to test 1.08 and managed to stabilize around 1.0850. Likewise, GBP-USD recovered back around 1.29, being helped in this by UK PMI surveys, which came in better than expected, especially the manufacturing index. The JPY continues to recover, with USD-JPY now even below 153 and thus down nearly ten big figures from values close to 162 reached as recently as 3 July. Expectations that the BoJ might again hike rates at its meeting on Wednesday have probably amplified the recovery of the Japanese currency, even though the recovery of the JPY is taking pressure off the Japanese central bank to again hike rates. Notably, investors do not currently see any drop in USD-JPY as a buying-on-dips opportunity like they have in the past and the break below 155 makes our current target of 151 by end of September for this pair quite feasible at this stage. Elsewhere, USD-CAD failed to rally much above 1.38 after the BoC trimmed the overnight target rate by 25bp to 4.50% and BoC Governor Tif Macklem called for further rate cuts if Canadian CPI-inflation keeps easing. Against this backdrop, today\u2019s price action is likely to be again dominated by economic data releases: a firmer German Ifo Business Climate Index this morning might help EUR-USD extend its rebound above 1.0850, but this recovery attempt might again be thwarted early in the afternoon if US GDP growth for 2Q24 shows an acceleration, although modest, with respect to 1Q24 and durable goods orders for June mark an increase as well. Supply cornerToday, Italy will sell up to EUR 3.5bn of the new BTP Short Term 3.1% Aug26 in an inverted segment of the curve. In line with previous BTPs Short Term, the new benchmark will likely offer a pickup to the curve, which would make it appealing relative to slightly longer-dated bonds. The Italian Treasury will also reopen BTPei 1.5% May29 and BTPei 2.55% Sep41 for a total of up to EUR 2.25bn. Amid a moderate decline in market-based inflation expectations, BTPei May29 remains a cheap inflation hedge and could outperform longer-dated linkers should inflation reaccelerate (for details, see Primary Market Focus \u2013 New BTP Short Term Aug26 to offer a pickup to bonds in the 3Y area, 23 July).Today, Italy will also announce the details of its medium\/long-term auction slated for 30 July. The Italian Treasury will likely sell EUR 3.5-4bn of the new BTP Oct29, EUR 3-3.5bn of bonds in the 10Y area (including the benchmark BTP 3.85% Jul34) and EUR 1-1.5bn of CCTeu Apr32.<\/p><\/p>"},{"layout":"linklist","uid":3088,"publicationDate":"23 Jul 15:36","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2024_186786.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJN88F_C_5eQPkUFP9dyqong=&T=1&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - Price stability by end-2025 is key for ECB cuts","product":"Chart of the Week","synopsis":"<p class=\"ucrIndent\"><\/p><\/p><p><ul class=\"ucrBullets\"><li>Will the ECB cut rates again on 12 September' Last week, ECB President Lagarde offered absolutely no guidance and simply said that the decision is \u201cwide open\u201d. Markets are currently pricing in an 80% probability of another 25bp cut, an assessment we share. We think the central bank\u2019s rate decision will critically depend on whether the new set of macroeconomic projections to be published at that meeting continue to show a decline in inflation to 2% yoy by the end of next year, thus confirming the indications of the previous four rounds of forecasts (see chart). <\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>Our view is based on two convictions. First, with interest rates clearly in restrictive territory, the Governing Council (GC) is keen on setting policy mainly according to the forward-looking component of their reaction function (i.e. their inflation projections). The strong decline in the inflation-forecast error in recent quarters, mainly reflecting the unwinding of unprecedentedly large supply-side shocks, has been key to reestablishing the proper role of projections in guiding policy. Second, the ECB appears determined to achieve price stability by the end of 2025 in order to keep inflation expectations firmly anchored. The importance of inflation converging to target by no later than end-2025 was already flagged by Ms. Lagarde in June, when she pointed out that the stabilization in the inflation projection for 4Q25 at 1.9-2.0% yoy since the forecasting round of September 2023 had given the ECB enough confidence to start dialing back its restrictive policy stance. <\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>Several important data will be published before the September meeting, including the two flash estimates for HICP inflation for July and August. We do not expect that any upside surprises on the inflation front would be large enough to trigger a material reassessment of the ECB\u2019s price outlook at end-2025, which is largely based on the expectation that wage growth will moderate substantially next year \u2013 the latest surveys carried out by the central bank support this view. Thus, the GC is likely to be on track for a second rate cut, and we suspect that further substantial, although gradual, easing will follow, as inflation is likely to ultimately undershoot the ECB\u2019s forecast. <\/li><\/ul>"},{"layout":"linklist","uid":3078,"publicationDate":"20 Jul 11:21","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2024_186769.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJN88F_C_5eQPsVZ2bNmBTe8=&T=1&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - European Parliament: center in control despite shift to the right","product":"Chart of the Week","synopsis":"<p class=\"ucrIndent\"><\/p><\/p><p><ul class=\"ucrBullets\"><li>The tenth legislative term of the European Parliament (EP) started this week. Our Chart of the Week presents the final composition of the groups in the new EP and compares it with the composition of the outgoing EP. It illustrates a shift to the right in the new parliament, mainly at the expense of Renew Europe (Renew) and Greens\/European Free Alliance (Greens), whose share of seats in the new EP has declined by about 3pp each. A united centrist coalition ranging from Socialists and Democrats (S&D), the Greens and Renew to the European People\u00b4s Party (EPP) can now claim 63% of seats, down from about 70% in the outgoing parliament.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>On the right side, the European Conservatives and Reformists (ECR) group increased its share of seats, also due to Brothers of Italy, which comprises about 30% of the group\u2019s seats. Moreover, two new groups were formed. The Patriots for Europe (PfE), which is now the third largest group in the EP, includes Hungarian PM Victor Orb\u00e1n\u2019s Fidesz, as well as France\u2019s National Rally and Italy\u2019s League (from the former Identity and Democracy [ID] group). The Europe of Sovereign Nations (ESN) is a far-right group, which primarily includes Alternative for Germany (AfD), which also arose out of ID. In total, these three groups now comprise 26% of the seats in the new EP, 9pp higher than the two groups comprised in the outgoing parliament. <\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>Against this backdrop, in a vote this Thursday, President of the European Commission Ursula von der Leyen, who was proposed to serve for a second term (2024-29), was able to cement a pro-Europe majority, gaining 401 votes in her favor, above the absolute majority of 360 votes. She was backed by MEPs from EPP, S&D and Renew, but she also consolidated an alliance with the Greens, and this helped offset the fact that some MEPs in these groups likely voted against her or abstained. After a long period of indecision, most MEPs from the ECR decided to vote against granting Ms. von der Leyen a second term. <\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>The key priorities for Europe for which Ms. von der Leyen will ask support in the next five years will include to foster competitiveness, to accelerate (in the first 100 days) investment and innovation for the European Green Deal (and to garner commitment to see it through), to build a true European defense union and to develop a European affordable housing plan. Key challenges will be to secure unity across a broad coalition on such ambitious list of interventions. However, as a starting point, her having built-up a pro-Europe majority in a much more right-oriented EP appears to spell good news for the advancement of European projects. <\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>In the short term, the first step will be to form her College of Commissioners. Ms. von der Leyen will wait for indications regarding commissioner candidates from all 27 EU member states to compose and present her new commission, most probably before the end of the summer, while the EP will vote on investiture of the new commission between October and November, with the new commission becoming operational before the end of the year.<\/li><\/ul>"},{"layout":"linklist","uid":3077,"publicationDate":"20 Jul 11:16","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/emergingmarkets_docs_2024_186768.ashx?EXT=pdf&KEY=l6KjPzSYBBGzROuioxedUNdVqq1wFeRoqo6ErlZ1zZ8xkUEpsYOeWw==&T=1&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"CEE Data Watch","product":"EEMEA Macro Note","synopsis":"<p class=\"ucrIndent\">Next week\u2019s highlights will be the monetary policy decisions in Hungary, Turkey and Russia. Additionally, Moody\u2019s will review its ratings of Bulgaria and Czechia while S&P will review its rating of North Macedonia. We do not expect any changes to these ratings. Please note, that this is the last issue before the summer break. We will resume on 6 September.<\/p>"},{"layout":"linklist","uid":3053,"publicationDate":"12 Jul 14:24","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2024_186747.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJN88F_C_5eQP5igMeDqFIl8=&T=1&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - Relative price movements should not concern central banks","product":"Chart of the Week","synopsis":"<p class=\"ucrIndent\"><\/p><\/p><p><ul class=\"ucrBullets\"><li>Central banks cannot do much about so-called relative price movements, whereby prices for individual products rise more or less than the overall inflation rate, as monetary policy works on aggregate demand. These relative price movements reflect demand and supply imbalances for individual products. It is these relative price movements that facilitate the desirable and efficient reallocation of resources in response to shocks. <\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>Our Chart of the Week plots a measure of relative price movements (or sectorial variation in inflation) alongside core PCE inflation for the US. The recent (2021-23) high inflation episode saw large relative price movements, reflecting pandemic-related expenditure-switching, supply bottlenecks for some goods, and changes to terms-of-trade. It implies a low correlation between individual price movements (or a weak \u201ccommon\u201d component to inflation). This contrasts with the high inflation experience of the 1970s oil price shocks, when relative price movements were small in comparison and, hence, there was a high correlation between individual price movements (or a strong \u201ccommon\u201d component). The reduction in the \u201ccommon\u201d component of inflation since the early 1990s is likely in part due to central banks improved institutional framework (inflation targeting, central bank independence, and communication improvements), which has anchored inflation expectations.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>Large relative price movements can increase overall inflation, which can facilitate the sectorial reallocation that needs to take place in the presence of nominal rigidities. This can happen if, for example, firms facing lower demand for their products cannot cut nominal wages. However, given uncertainty about the size and persistence of shocks in real time, some tightening of monetary policy during 2021-2023 was likely necessary to ensure inflation expectations remained well anchored (and to avoid the de-anchoring of the 1970s). More recently, central banks have shown some concern regarding still-high services price inflation, despite weak core goods price inflation. In this respect, yesterday\u2019s US June CPI report was welcome, as it showed a second consecutive month of much lower services-price inflation, which chimes with signs that the labor market (wages are the biggest cost for services providers) has come into better balance.<\/li><\/ul>"},{"layout":"linklist","uid":3052,"publicationDate":"12 Jul 12:52","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/emergingmarkets_docs_2024_186746.ashx?EXT=pdf&KEY=l6KjPzSYBBGzROuioxedUNdVqq1wFeRoZ3Z_pynuWuuoXkPxwTu2Hg==&T=1&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"CEE Data Watch","product":"EEMEA Macro Note","synopsis":"<p class=\"ucrIndent\">Next week\u2019s data releases will focus on developments involving labor markets and external balances in the region. Moreover, we think Moody\u2019s will upgrade its sovereign credit rating for Turkey on 19 July.<\/p>"},{"layout":"linklist","uid":3048,"publicationDate":"11 Jul 16:20","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2024_186742.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJN88F_C_5eQPDDUgzOxBNBE=&T=1&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Data Comment - US CPI: Time for a September rate cut","product":"Data Comment","synopsis":"<p class=\"ucrIndent\"><\/p><\/p><p><ul class=\"ucrBullets\"><li>The June CPI report brings the good news that the Fed was waiting for. Consumer prices fell 0.1% mom in June after a flat reading in May. This is the third consecutive month of lower inflation. In yearly terms, headline CPI inflation decelerated to 3.0% yoy from 3.3%. Looking at the non-core components, the energy index fell 2.0% mom (driven by lower gasoline prices), while the index for food increased a contained 0.2% mom. More importantly for the monetary policy outlook, disinflation continued also on the core front, with core CPI inflation easing to just 0.1% mom from 0.2% (3.3% yoy from 3.4%). Annualized figures for core inflation over different time periods, which allow to remove some of the monthly volatility, showed substantial recent progress towards 2%. The three-month rate declined to 2.1% from 3.3%, while the six-month rate was down to 3.3% from 3.7%. <\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>Looking at the breakdown, there was good progress on disinflation across the board. In particular, the long-awaited decline in housing price inflation finally gained momentum. The shelter index declined to 0.2% mom from 0.4%, with the index for rent and owners\u00b4 equivalent rent both rising 0.3% mom \u2013 these were the smallest increases in these indices since August 2021. Also, the supercore index (services prices excluding energy and housing) fell 0.1% -- the second negative reading in a row. The fall was driven by airfares and communication services, while medical care services inflation eased. Prices for motor vehicle insurance and personal care services rose at a faster rate than in May. The overall improvement on the services inflation front is especially important given the stickiness that has characterized this CPI component. Finally, core goods prices contracted 0.1% mom, remaining in negative territory or flat for a fourth consecutive month, driven in particular by lower prices for used cars and trucks. <\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>We know from the first months of 2024 that monthly volatility in inflation numbers can radically change expectations about the direction of monetary policy. After the December dovish pivot that was triggered by a string of good inflation numbers, the Fed was then forced to reconsider its rate path when CPI inflation turned out to be stronger-than-expected in 1Q24. However, considering also the overall softening macroeconomic landscape, today\u2019s data will further increase the Fed\u2019s confidence that the disinflation process is on track, likely paving the way for a first rate cut in September. <\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>At his testimony to Congress, Fed Chair Powell repeated that the Fed needed to see \u201cmore good data\u201d to strengthen its confidence that inflation is moving sustainably towards 2%. And today\u2019s reading goes precisely in that direction. Moreover, he said that \u201celevated inflation is not the only risk\u201d, adding that \u201clabor-market conditions have now cooled considerably from where they were two years ago. Mr. Powell characterized the labor market now as \u00b4fully back in balance\u201d and not just \u00b4relatively tight but not overheated\u00b4. This subtle but important communication shift implies that the Fed is preparing the ground for a rate cut in September.<\/p><\/li><\/ul><p class=\"ucrIndent\"><strong><p>In more detail:F<\/strong>Fed officials have stated that they look closely at the six-month and three-month annualized rates for inflation. The June CPI report shows that there was considerable progress on this front for both headline and core inflation towards levels consistent with the 2% target for PCE inflation (Chart 1). CHART 1. THE 2% TARGET IS IN SIGHT<\/p>"},{"layout":"linklist","uid":3031,"publicationDate":"07 Jul 13:19","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2024_186720.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJN88F_C_5eQP_nL2wITMWOk=&T=1&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Sunday Wrap - Special Edition","product":"Sunday Wrap","synopsis":"<p class=\"ucrIndent\"><\/p><\/p><p><ul class=\"ucrBullets\"><li>The economic challenges facing the UK are huge, from low productivity and a cost-of-living crisis to a surge in economic inactivity and a less-open economy. The good news is that Labour seems to grasp the problems, but \u2026<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>Labour\u2019s plans to address these are too timid to make a significant difference. This cautious approach might change once Labour is in government, but stretched public finances, self-imposed and arbitrary fiscal rules, and a pledge to not raise the main tax rates will leave it with little room to maneuver.<\/li><\/ul>"},{"layout":"linklist","uid":3030,"publicationDate":"05 Jul 16:52","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2024_186719.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJN88F_C_5eQP_7_4cx9Y4Gw=&T=1&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Data Comment - US: The labor market continues to cool","product":"Data Comment","synopsis":"<p class=\"ucrIndent\"><\/p><\/p><p><ul class=\"ucrBullets\"><li>The US economy added a still-solid 206k jobs in June, after a downward-revised gain of 218k in May. However, the details were weaker. Payrolls in April and May were revised down a cumulative 111k. Three-quarters of payroll gains in June came from just two sectors: health & education, and government, both of which are acyclical. Private sector payrolls rose a subdued 136k. While whole-economy payroll growth is still at or slightly above the estimated 180k or so needed to keep up with population growth, as we explained in our Data Comment on the May payrolls report, we think that the BLS\u2019 birth-death model used to compute payrolls is overestimating employment gains at this juncture (which is probably a turning point). The household survey measure of employment has fallen by 670k since November last year, and whilst it rose modestly in June, this was all driven by part-time employment as full-time employment fell again.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>The unemployment rate rose slightly further in June, up 0.1pp to 4.1%. This is 0.1pp higher than where the FOMC expects it to end this year at, which looks optimistic to us (we expect the unemployment rate to rise to 4.5% by year-end). In June, the rise in the unemployment rate was driven by a welcome increase in the participation rate.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>Average hourly earnings growth slowed to 0.3% mom in June from 0.4% in May as the labor market comes into better balance. It took the year-on-year rate down to 3.9% from 4.1%. It remains above the 3-3.5% range that most Fed officials judge to be consistent with meeting the 2% inflation target over time, but not by much.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>The Fed has said that before it can cut rates it needs to see further evidence that inflation is moving down sustainably towards 2%, or that the labor market is weakening materially. The June employment report shows that the labor market is cooling, but not dramatically so, while pay growth continues to ease. While nothing is falling off a cliff, the Fed will likely start to worry a little bit more about the risk that the labor market could weaken materially if it were to wait too long to cut rates. Macro data have surprised to the downside recently, including the fall in the ISM Non-Manufacturing index into contractionary territory in June, rising jobless claims, and falling factory orders. The next key US data release will be the June CPI report on Thursday, which we expect to show further progress on disinflation. We still expect the first Fed rate cut in September and a total of three rate cuts this year.<\/p><\/li><\/ul><p class=\"ucrIndent\"><p>Chart 1 shows that nonfarm payrolls rose 206k in June after a rise of 218k in May and 108k in April. The three-month average payroll gain slowed to 177k in June from 212k in the prior month. The six-month average gain eased slightly to 222k from 236k.<\/p><\/p><p class=\"ucrIndent\"><p><\/p>"},{"layout":"linklist","uid":3028,"publicationDate":"05 Jul 13:15","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/emergingmarkets_docs_2024_186716.ashx?EXT=pdf&KEY=l6KjPzSYBBGzROuioxedUNdVqq1wFeRoOeft_3huDnGTEuHlRLTFww==&T=1&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"CEE Data Watch","product":"EEMEA Macro Note","synopsis":"<p class=\"ucrIndent\">Next week\u2019s highlights will be the release of June inflation data in Hungary, Czechia, Romania and Serbia, in addition to the monetary-policy decision by the NBS. <\/p>"},{"layout":"linklist","uid":3007,"publicationDate":"28 Jun 10:54","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/emergingmarkets_docs_2024_186692.ashx?EXT=pdf&KEY=l6KjPzSYBBGzROuioxedUNdVqq1wFeRoLRJOXd02UXrIib-Kd5wOBg==&T=1&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"CEE Data Watch","product":"EEMEA Macro Note","synopsis":"<p class=\"ucrIndent\">The highlights next week will be the release of manufacturing PMIs for central Europe, Russia and Turkey; Turkey\u2019s inflation data for June and central-bank meetings in Poland and Romania.<\/p>"}]