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[Quick Facts]

1. Atlanta Fed's GDPNow model estimate for the U.S. Q3 economy is 4.1%.

2. Russia abandons its budget rule to save the depreciating ruble.

3. European gas prices soar 20% as risks to LNG supply intensify.

4. A bond market inflation gauge shows doubts about the Fed's victory over inflation.

[News Details]

Atlanta Fed's GDPNow model estimate for the U.S. Q3 economy is 4.1%

The latest forecast from the Atlanta Fed's GDPNow model shows that U.S. GDP is expected to grow at 4.1% in the third quarter of 2023, compared with the forecast of 3.9% on August 1. GDPNow revised upward the third-quarter real gross private domestic investment growth from 5.2% to 8.1%, downward the third-quarter real personal consumption expenditures growth and the third-quarter real government spending growth from 3.5% and 2.9%, respectively, to 3.2% and 2.7%, while the nowcast of the contribution of the change in real net exports to second-quarter real GDP growth increased from 0.08 percentage points to 0.11 percentage points.

Russia abandons its budget rule to save the depreciating ruble

Russia's central bank said on Wednesday that it would stop carrying out the finance ministry's foreign currency purchases from Aug. 10 through the end of the year in an effort to prevent the ruble from falling to new lows, which effectively abandons its budget rule.

Under its budget rule, Russia sells foreign currency from the National Wealth Fund (NWF) to cover any shortfall in revenues from oil and gas exports or buys foreign currency when there is a surplus. The central bank said it may postpone the purchases within the framework of the budget rule until 2024.

The move signals the Russian central bank's concern about exchange rate movements, but these measures are not enough to prevent further ruble weakness.

European gas prices soar 20% as risks to LNG supply intensify

European natural gas prices saw their biggest rise in nearly two months, with benchmark gas futures prices soaring 21% today, as workers at some Australian plants may strike, leading to higher risks to liquefied natural gas (LNG) supplies.

If there is a supply disruption, Asian buyers are likely to bid up LNG imports to replace those from Australia, which would also affect Europe. LNG has become a baseload source of supply for Europe, so any signs that there is a risk to this flow could lead to support in price. In addition, potential delays in seasonal maintenance in Norway also pose a risk, adding to the upward pressure on prices. For the time being, at least, the bullish factors have outweighed lukewarm demand and unusually high inventories in Europe.

A bond market inflation gauge shows doubts about the Fed's victory over inflation

A bond market gauge that measures expected U.S. inflation is rallying to a nearly nine-year high, signaling market concerns that the Federal Reserve needs to continue to deal with high price pressures for years to come. The rise in the gauge contrasts with broader speculation that a sharp increase in interest rates by the Fed will continue to curb surging consumer prices.

Inflation has fallen as a result of the Fed's aggressive actions, but there is still a risk that underlying inflation expectations will rise. The market expects higher inflation and higher real interest rates for the foreseeable future. But the market's inflation expectations are not high enough to show significant concern.

[Focus of the Day]

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