1. U.S. GDP and unemployment numbers ease as macro pressure in Europe increases
The Facts:
- The U.S. Commerce Department reported Thursday that the U.S. GDP contracted less than previously estimated, revised to -0.6% from -0.9%, while the gross domestic income (GDI) rose at a rate of 1.4% in Q2.
- The U.S. economy shrinks slightly in the second quarter, but the underlying numbers do not indicate a recession.
- On Thursday as well, the U.S. Labor Department reported that unemployment claims fell 2’000 to 243’000, lower than the estimate, indicating labor strength.
- Meanwhile, German benchmark year ahead power prices rose above €800/MWh on Friday, nearly 10 times higher YoY while Russia is cornering supply ahead of the winter.
- The UK, that recently reported a 40 year high in inflation rates of 10.1%, is expected to see even higher inflation and rates as energy prices surge.
Why it’s important:
- As the numbers reported add to a mixed outlook regarding a slowing economy while not indicating a recession, today’s Jackson Hole speech of FED Chair Powell is expected to give more clarity on how they plan to approach monetary policy from here.
- As energy prices are highly linked to gas, they keep hitting record highs in Europe as natural gas, used to generate electricity and heat, now costs about 10 times more YoY.
- With that, elevated energy prices fuel inflation and will likely massively hit energy heavy industry such as Germany’s.
- Germany therefore considers postponing the shut-down of their last three nuclear power plants in order to mitigate energy shortages while Japan even signals to return to nuclear energy by developing next-generation reactors to fight soaring energy prices.
- With the energy markets being squeezed, it is fairly obvious that the EU might want to return energy policy to the top of its political agenda.
