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Consumer Confidence Miss Raises Questions About Underlying Recovery

Published 09/01/2021, 12:22 AM
Updated 07/09/2023, 06:31 AM

by Adam Button

As we anticipated, US consumer confidence badly missed expectations on Tuesday, raising new questions about the underlying strength of the recovery. Despite that, the dollar pared earlier losses as month-end flows played into the mix.

Higher than expected Eurozone CPI did not go unnoticed by bund traders. Wednesday's highlights include the US ADP report and ISM manufacturing. Ashraf posted a video today of the live market reaction to the miss in consumer confidence as alerted in yesterday's video. Ashraf also shared this tweet below.

Tweet By Ashraf

US consumer confidence fell to the lowest since February on Tuesday in a move that surprised economists and some market participants but not us. As we highlighted on Monday, drops in the index are highly correlated with the University of Michigan survey and that's precisely what happened. Confidence fell to 113.8 from 129.1; much lower than the 124.0 consensus.

The miss weighed on the dollar initially but month-end flows led to broad USD buying into the London fix.

In the days ahead, fixing demand will be long gone but questions about the consumer are only beginning. The assumption rate coming out of the pandemic was that a high savings rate and healthy consumer balance sheets would lead to a spending spree but higher prices due to bottlenecks are keeping people from buying cars and now covid is crimping demand again.

That paradigm could materially slow H2 growth and keep the Fed off balance. At some point it will weigh more heavily on the dollar but the timing on that trade is elusive.

For now, the market is focused on employment and inflation. We'll get two inputs on that Wednesday with the release of ADP employment and ISM manufacturing. The current focus on jobs will make ADP the highlight (despite its flaws) but the prices paid component of the manufacturing survey could also resonate.

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