Gold Plunges Nearly $40 in Short Term

There are no signs of a collapse in U.S. consumer demand, and a 25 basis point rate cut by the Federal Reserve in September remains the most likely option.

U.S. retail spending increased in July, indicating that cooling inflation and rising incomes continue to drive household consumption power.

Data from the U.S. Department of Commerce shows that, adjusted for seasonal factors, retail sales last month increased by 1% compared to the previous month. This is a strong rebound compared to June, when sales data were revised down by 0.2%. Economists surveyed by The Wall Street Journal had previously expected retail sales to grow by 0.3% in July.

There is also good news on the labor market front. For the week ending August 10, initial jobless claims stood at 227,000, a decrease of 7,000 from the previous week and below the market expectation of 235,000, marking a second consecutive week of decline to the lowest level since early July. This should further reinforce the view that the July non-farm employment report may indeed have been negatively affected by Hurricane "Beryl," and the labor market will continue to remain resilient.

After the data release, gold fell nearly $40 in a short term; the U.S. dollar index rose nearly 60 points in a short term; non-U.S. currencies普遍 fell, with the euro against the U.S. dollar falling nearly 60 points in a short term; the British pound against the U.S. dollar fell more than 60 points in a short term; the U.S. dollar against the Japanese yen rose 150 points in a short term, increasing by more than 1% during the day.

The absence of signs of a collapse in consumer demand may lead financial markets to reduce expectations for a 50 basis point rate cut by the Federal Reserve next month. Due to a moderate increase in inflation in July, the possibility of a 25 basis point rate cut remains high.

The report shows that despite rising borrowing costs, a cooling labor market, and uncertain economic prospects, consumers are still persevering. As savings from the COVID-19 pandemic have now largely disappeared, and wage growth has slowed, many Americans are increasingly turning to credit cards and other loans to support their purchases, raising questions about the sustainability of consumer spending, especially as more and more people default on payments.

Out of the 13 categories reported, 10 categories saw growth. After a significant drop in sales due to a cyberattack on car dealerships in June, car sales rebounded. Sales at car and parts dealers increased by 3.6%, a notable monthly increase; electronics and home appliances also recorded strong growth.

E-commerce sales increased by a modest 1.6%, possibly due to significant discounts from Amazon's Prime Day and other promotional activities from Walmart and Target.

Building materials, gardening equipment, and supplies dealers increased by 0.9% month-on-month, showing unexpectedly strong signs despite warnings from companies like Home Depot.The growth in sales at food and beverage stores increased by 0.9%, indicating that consumption at grocery stores remains stable. Sales at food services and drinking places rose by 0.3%, suggesting continued growth in dining out, albeit at a modest pace. Sales at health and personal care stores climbed by 0.8%, demonstrating sustained growth in this sector.

However, the weakening job market, and what this means for the biggest driver of U.S. economic activity—consumer spending—is a key factor in the Federal Reserve's expectation to begin cutting interest rates next month. As the job market cools and the presidential election approaches, consumer confidence indicators have been low, overshadowing progress in curbing inflation.

The slowdown in the job market, coupled with recent improvements in inflation, strengthens the rationale for the Federal Reserve to cut interest rates at the September policy meeting next month. The July CPI data released on Wednesday showed that the year-over-year growth rate of the U.S. core CPI has slowed for the fourth consecutive month.

Following the July non-farm employment report, which showed an increase in the unemployment rate for the fourth consecutive month and a slowdown in hiring, analysts and investors are closely monitoring signs that the job market's weakness might be faster than expected. Although the number of initial jobless claims has been on an upward trend this year, it remains below the levels of 2019.