U.S. Durable Goods Beating Expectations Two Days Ahead of the Fed Meeting
Durable Goods Orders in the United States came better than expected yesterday. The MoM release shows an increase of 7.3%, higher than expectations of 7%.
It is another sign of improvement, albeit a timid one. The increase follows a 15.1% increase in May, a promising sign for new orders, and the pick-up in overall economic activity.
Core Orders Declined
Despite the better than expected headline, the core number, that excludes aircraft, missed expectations. Furthermore, the previous monthly release was revised lower, too, spoiling a bit the positive headline.
The market did not react much to the Durable Goods data, for the simple reason that the Federal Reserve (Fed) is due to announce its monetary policy on Wednesday. As it is accustomed ahead of such important events, the market spends its time in tight ranges, with investors taking little chances before.
So what is the purpose of data such as Durable Goods and how it helps traders? Interpreting such data is key for medium to long-term investing, as putting it together helps to form the big, macro picture needed to land on the right side of the market.
Speaking of the Fed, this week, the market expects that it will reinforce its dovish guidance – one explanation for the steady decline in the USD.
What would be a game-changer is if the Fed announces a threshold for future actions. For instance, just like it did a few years ago when rising employment levels led to a threshold for what it means full employment. Once that reached, the Fed began raising the rates, and it did not stop until it moved the federal funds rate above 2%.
It may be too soon to talk about unemployment or even explicit inflation targets for lifting the rates. The market views the Fed’s first raising the rates only in 2024 – and even that might be pushed forward, depending on the coronavirus crisis and the US Presidential election a few months away.
If Trump wins a second term, Jerome Powell is likely to remain in the office. If, on the other hand, Biden wins, the US President has the power to name a new Fed Chair – and that may change everything.
Coming back to the Durable Goods release, new orders, shipments, but also unfilled orders and inventories, rose. Combined with the decline in the core data, we might say the release is not that impressive after all.