FOMC Odds Fall to 44% as US Data Paints Mixed Picture

Deutsche Bank strategists are revising their expectations for the September Federal Open Market Committee (FOMC) odds following last Friday's mixed US Nonfarm Payrolls (NFP) report. The report showed a broadly stable labour market, with modest monthly gains in US Consumer Price Index (CPI) and Producer Price Index (PPI), alongside steady retail sales and softer University of Michigan (UoM) sentiment data.

According to Deutsche Bank, the mixed assessment of labour market conditions led to a notable repricing of FOMC odds, with futures-implied probability of a hike falling to 44%. This represents a decrease of around 10 percentage points immediately after the release on Friday.

The strategists expect modest monthly gains in US CPI and PPI. They forecast headline CPI to rise by +0.15% mom after June's -0.42% decline, while core CPI is predicted at +0.26% mom following an unchanged reading in June. For July PPI, they anticipate headline producer prices to rise by +0.22% mom, with core PPI at +0.3% mom.

Attention will turn to the first major read on Q3 activity from Friday's US data. Deutsche Bank expects retail sales to increase by +0.3% mom in July, but notes that lower fuel prices may weigh on the headline figure relative to underlying spending measures. The preliminary University of Michigan consumer sentiment survey is predicted to ease to 52.5 in August from 55.2 previously.