The US Conference Board’s consumer confidence index plunged to 81.9 in September, the lowest since 2014, badly undershooting the 89 consensus. The weakness was broad-based, with assessments of both current conditions and the six-month outlook deteriorating. The labour market signals were particularly concerning. Only 14% of consumers expected more jobs ahead, compared to 28.4% expecting fewer. The share of consumers who said their finances were “bad” rose to overtake those saying “good” for the second time since the question was introduced four years ago. Yet, the weaker confidence was not accompanied by lower inflation concerns. One-year inflation expectations rose to 6.1%, with 68.4% of respondents expecting interest rates to rise over the coming year.
The above consumer report challenges the notion that renewed Fed tightening will translate automatically into sustained USD strength. Higher rates had been USD-supportive, but a further tightening narrative could squeeze consumers already facing higher energy and living costs, rising mortgage rates, and deteriorating employment prospects. New York Fed President John Williams is looking for another hike this year, which he hinted isn’t unlikely to be a back-to-back move in October.
The consumer confidence report makes today’s PCE inflation and Friday’s nonfarm payrolls more consequential because it raises the prospect that the Fed is tightening into a weakening household sector. Markets are looking for PCE inflation to mirror the higher CPI readings before the September 16 Fed hike. August PCE inflation is expected to rise 0.4% MoM from 0.2% in the previous month, while core inflation is seen at 0.3% from 0.2%. In YoY terms, headline and core inflation are expected to remain unchanged at 3.7% and 3.3%. Friday’s nonfarm payrolls will be the bigger test. The Conference Board’s report historically contained useful information about labour market conditions. USD bulls will not like it if NFP falls below the 90k consensus, down from August’s surprise jump to 127k, or if the unemployment rate rose instead of staying unchanged at 4.1% for a third month.
Quote of the Day
“Where words fail, music speaks.”
Hans Christian Andersen
Today in history
Wolfgang Amadeus Mozart’s final opera, The Magic Flute, premiered on September 30, 1791, in Vienna, Austria.
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