On Friday, July’s readings on US core durable goods orders showed that the amount spent on non-volatile items such as transportation came in higher than expected, pushing the dollar up during the mid- European trading hours. However, the dollar could not maintain its gains arising from the data following less hawkish talk by Fed Chief Jannet Yellen.
According to the numbers published by the Census Bureau, new orders for durable goods excluding transportation picked up from 0.1% in June to 0.5% m/m (5.3% y/y) in July, surprising analysts who expected orders for long-lasting manufacturing products to increase by 0.4% instead. Manufacturing shipments, rose by 0.4% m/m, similar to the previous month (4.7% y/y).
Non-defense capital goods orders excluding aircraft jumped by 0.4% m/m (3.3% y/y), after no change in the previous month. Shipments in the same category, which are closely watched as they are used to estimate investments on equipment that is included in the GDP measure, were up by 1.0% m/m (2.4% y/y), exceeding the forecasted 0.6% and the 0.3% seen in the previous month.
Regarding transportation equipment, the decline in orders widened massively from 1.6% in June to 19.0% m/m in July, missing expectations of a 19.1% expansion (+4.6% y/y). On the other hand, shipments posted a weaker rise of 0.5% m/m (0.3% y/y), compared to 2.4% in June, despite analysts anticipating a pullback of 0.6%.
In total, durable goods orders turned negative in the aforementioned month, decreasing by 6.8% m/m (+5% y/y) while expectations were for the figure to increase by 6.4% after it stagnated in June. In contrast, shipments rose by 0.4% m/m (3.2% y/y) above the forecast of no growth, but below the previous mark of 1.3%.
The above data indicated that companies continued investing on equipment despite uncertainty around tax cuts weighing on business decisions. However, a few hours before the data release, the head of the White House national economic council, Gary Cohn, said that Trump has scheduled to give a series of speeches in the days ahead (starting in Missouri on Wednesday) to convince the public about tax reforms. Nevertheless, Congress, which returns from a summer break, will also play a significant role on the future path of fiscal policy as it will debate during September whether to raise the debt ceiling.
Turning to the reaction in the forex markets, the dollar gained immediately against its rivals after the data release, but plummeted afterwards following comments from the Fed Chief Janet Yellen who stated during her speech at the ongoing Jackson Hole conference on Friday that any adjustments on financial rules should be "modest". The dollar index jumped initially by 0.25% to 93.29 as durable goods data went public, before sinking to 92.75. Euro/dollar retreated by 0.26% to a low of 1.1785 but it managed to rebound to 1.1857 after Yellen’s remarks, while dollar/yen moved up by 0.25%, before dropping to 109.24.
