US: Looking for signs of inflation and recovery - AmpGFX

Greg Gibbs, Director at Amplifying Global FX Capital, suggests that the US sees two key data points this week, durable goods orders on Wednesday and PCE inflation on Friday. 

Key Quotes

“The former will be key to establishing if there is hope for a lift-off it capital investment after a long period of downward drift over the last year or so.  Core capital goods orders increased a little in the two months to July, it will be interesting to see if it can build on this start.

The Fed presented a relative down-beat view of inflation; anticipating slow recovery towards 2% over the next few years from a PCE core rate of 1.6%y/y in Aug. The market anticipates it will firm to 1.7%y/y in September.  As such it doesn’t seem that far from the Fed’s 2.0% target, and yet the FOMC did not project it above target in its three year horizon presented last week, and still had it below target until 2018.

The CPI report suggests that there is more evidence of inflation.  The gap between the core PCE and CPI (excluding fresh food and energy) is at its widest level in over a decade.

However, while the inflation trends appear to be rising, a concern is that recent activity indicators, including PMI data, have been relatively soft. The Chicago Fed National Activity index and Conference board Leading Indicators suggest growth may still be sub-trend, placing in question the notion of a recovery in the second half in the USA.”