Citigroup Sticks To Bullish Dollar Call As US Election Draws Near

Looking under the hood, an upward revision to consumer spending (2.9% q/q vs. prior 2.3% q/q) was largely responsible for last quarter’s upgrade. Spending on both goods (3.0% q/q vs. prior 2.5% q/q) and services (2.2% q/q vs prior 2.8% q/q) were revised higher. Meanwhile, non-residential investment saw a modest downward revision to 4.6% q/q, thanks to downgrades in both equipment spending (10.6% q/q vs. prior 11.6% q/q) and intellectual property products (2.6% q/q vs. prior 4.5% q/q).

Government spending was reported to have expanded by 2.7% q/q, with healthy gains from both the federal (+3.3% q/q) and state & local (2.3% q/q) level.

Net exports shaved 0.8 pp from Q2 growth (unchanged from the prior estimate), though this was entirely offset by an equal gain in inventory investment.

Real Gross Domestic Income (GDI) rose by 1.3% q/q in the second quarter, matching Q1’s gain. Corporate profits were up 7.0% (annualized) or $57.6 billion after accounting for inventory valuation and capital consumption adjustments. The ratio of corporate profits to nominal GDP ticked up 0.1 pp to 12.0%.

The average of GDP and GDI, a supplemental estimate of domestic production, rose 2.1% q/q in the second quarter or slightly weaker than the pace of growth suggested by the expenditure GDP data.

Key Implications

The Bureau of Economic Analysis’ second estimate of Q2 GDP saw a very modest upward revision relative to the preliminary reading. Overall, the economy continued to show ongoing resilience through the second quarter, as evidenced by the breadth of gains across domestic drivers. Final domestic demand (i.e., the sum of consumer spending, fixed investment, and government outlays) rose by a healthy 2.9% in Q2 and averaged 2.8% through the first half of the year – largely unchanged from H2-2023’s 3.1%.

That said, there was at least some evidence in the report to suggest that the economy’s resilience will soon start to wane. For starters, the uptick in Q2 PCE was driven by a rebound in goods spending, which we do not expect to continue, particularly given the recent softening in labor market fundamentals. Second, the sharp acceleration in equipment outlays can largely be traced back to a surge in aircraft purchases last quarter and is unlikely to be repeated in Q3. Lastly, the gain in federal spending was the result of a notable bump in national defense outlays, which is also likely to mean revert over the coming quarters.

All that to say, we appear to be in a goldilocks scenario where growth is likely to gradually edge lower through the second half of the year, allowing inflation to drift closer to the Fed’s 2% target. This should enable the FOMC to cut its policy rate by at least 75 basis points by year-end.

Malaysia’s gross loan growth remained steady in July, as expansion in business borrowings offset a slowdown in corporate bonds, official data from the central bank showed on Friday.

Credit to the private non-financial sector expanded 5.5% year-on-year in July, the same pace as in June, Bank Negara Malaysia (BNM) said in a statement. Outstanding business loans grew 6% in July, versus 5.7% in June.

Growth in business loans was supported by demand for working capital, particularly across the manufacturing and services sectors. Investment-related loan growth also remained “forthcoming”, the central bank noted.

In July, outstanding household loans grew 6.2%, the same pace as in June, supported by steady expansion in loans for the purchase of housing and cars. “Loan applications were higher, reflecting the demand for financing among households,” BNM said.

Outstanding corporate bonds meanwhile grew 3%, moderating from a 3.4% increase in June.

The data covers loans to households and non-financial corporations from the banking system and development financial institutions, as well as corporate bonds issued by non-financial corporations, including short-term papers.

“The banking system's resilience continues to be underpinned by sound asset quality,” BNM said, as the overall gross impaired loan ratio — debts deemed unrecoverable as a percentage of total loans — was stable at 1.6% in July. On a net basis, impaired loans were also steady at 1% in July.

Total provisions stood at RM31.73 billion in July, compared with RM31.9 billion in June.

Banks’ liquidity and funding positions remained supportive of intermediation activities, BNM said, even as the liquidity coverage ratio slipped to 150.8% in July from 155.1% in June, while the aggregate loan-to-fund ratio inched up to 83% from 82.8% a month earlier.

M3, the broadest gauge of the country’s money supply including currency in circulation, fixed deposits and foreign currency deposits, expanded 5.3% in July, a tad faster than June’s 5.2% pace.

Source: The edge markets

Focus on the U.S. Jobs Report

Fed Policy Shift

Dollar Movement and Technical Analysis

Treasury Yields and Dollar-Yen Dynamics

European Political Landscape

Global Central Bank Policies

Political and Economic Outlook

Conclusion

Bets for double Fed cut remain elevated

Employment data take center stage

BoC preparing for a third straight cut

Will Australia’s GDP numbers halt the aussie’s rally?

Source:XM