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US economic data confirm economy is slowing

Equity markets in the US barely moved on Thursday after a slew of economic data was released showing cautious spending by businesses and consumers. Traders dug in positions ahead of Friday’s personal consumption expenditures (PCE) data, which could provide clues into the likelihood and timing of interest rate cuts by the Federal Reserve. In Asia, stock markets were finishing the last session of the week with gains.

Shane Strowmatt, LGT
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5 minutes
US workers
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The US economic grew 1.4% in the first quarter when compared to the same quarter a year earlier. That figure is somewhat higher than the 1.3% estimate previously released, but still the weakest annual growth rate for any quarter since early 2022. Consumer spending was just 1.5%, lower than the government's first estimate of 2%. In addition to a weaker consumer, companies in the US seem to be cautious about prospects for future economic growth with orders at US factories for business equipment falling in May. Core capital goods orders dropped by 0.6% in May. Total durable goods orders increased by just 0.1%. The data suggests that higher borrowing costs are beginning to put pressure on both consumers and companies.

In New York, the major stock indices barely budged on Thursday. The Dow Jones Industrial and S&P 500 ended the day up 0.1%, while the Nasdaq-100 gained 0.2%.

US presidential debate unclear for markets

Initial media reactions to the presidential debate between President Joe Biden and former president Donald Trump clearly favoured the former president. Generally, commentators noted that Biden’s responses came across as weaker, stoking concerns about his age. Altogether, market participants were having a difficult time filtering the candidates’ responses for comments directly relevant for markets.

Japan replaces currency head

Japan appointed Atsushi Mimura to replace Masato Kanda as vice finance minister for international affairs as of the end of July. The move comes just one day after Japanese Finance Minister Shunichi Suzuki warned publicly that the government is prepared to take actions to prevent rapid fluctuations in the yen’s exchange rate. The yen - which has fallen about 12% versus the US dollar this year - was trading at 160.95 per US dollar on Friday, not far from the multi-decade low of 160.88 from this week. In macroeconomic data released on Friday, Japan’s industrial production increased 2.8% on the month in May, coming ahead of economists’ expectations. Inflation in the capital city of Tokyo, which is considered indicative of national inflation, sped up to 2.3% on the year in June, from 2.2% last month. The Nikkei 225 was trading 0.5% higher on Friday.

Across the rest of the Asia-Pacific region, stock markets were trading in positive territory. Hong Kong's Hang Seng Index was up 0.4%, while the CSI 300 gained 0.6%. South Korea’s Kospi and Australia’s S&P/ASX 200 were each up 0.1%.

Riksbank expects up to three cuts this year

The Swedish central bank kept interest rates unchanged with its key rate at 3.75% on Thursday. It signalled two or three cuts could come in the second half of the year as inflation has recently subsided while the economy remains week. The Swedish krona fell versus all major currencies on Thursday. 

In Turkey, the central bank kept its key one-week repo rate at 50% and reiterated that it plans to keep monetary policy tight until inflation - which recently increased to more than 75% - comes down sustainably. The central bank of the Czech Republic cut its benchmark two-week repo rate by 50 basis points to 4.75%, a larger move than the 25 basis points expected by economists.

Corporate and macroeconomic calendars

Corporate news in focus: There is no major corporate news scheduled today.

Economic data in focus: UK gross domestic product, French inflation, Switzerland’s KOF Economic Barometer, Spanish inflation, German unemployment, Italian inflation, US personal consumption expenditures, Canadian gross domestic product, University of Michigan US Consumer Sentiment Index.

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.

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