Markets await US economic growth after less hawkish comments from Powell

On Thursday, apart from today's US GDP figures, markets will be looking for signs of a further slowdown in German inflation for July during the European markets open. The June figure dropped to 8.2% from 8.7% in May and is expected to decrease further to 8.1% in July.

On Wednesday, the Federal Reserve raised interest rates for the second straight time by 75 basis points. However, Chairman Jerome Powell suggested the bank might slow its rate increases in the future if tighter monetary policy is taming US inflation. In this regard, inflation seems to persist well into next year, which may force the Fed to remain hawkish.

However, a glimmer of hope exists that Wednesday's comments from the Fed may signal the end of aggressive monetary tightening at some point in the near future, with the economy showing signs of a slowdown following the Fed's recent rate hike of 225 basis points.

After Powell's comments, Fed funds futures, which reflect investor expectations of central bank policy rates, have priced in a more dovish outlook. The odds of the Fed delivering a 50-basis point hike in September, rather than a third 75-basis point hike, jumped to 65% from 51%.

The Fed has been hawkish for most of this year. Still, it seems we are approaching a point where the hawkishness has reached its peak after a year in which inflation has repeatedly surprised markets and forced policymakers to tighten monetary policy.

In the early hours of Thursday morning, the dollar fell as the comments made by the Chairman of the US Federal Reserve, Jerome Powell, on future interest rate hikes sounded less hawkish than expected.

Despite a downturn in the economy, US stocks continued to rally on Wednesday. Tech and growth stocks led Nasdaq to a 4.1% gain, its biggest daily percentage gain since April 2020. After falling as much as 23.6% in the first half, the benchmark S&P 500 is up nearly 10% from its mid-June low.

Events of today

US economic growth in Q2 and weekly jobless claims are at the top of the economic calendar on Thursday. An important question now is whether the US has entered a technical recession after seeing a -1.6% contraction in Q1. Later today, we'll find out with the first estimate of Q2 GDP, which is expected to come in at 0.5% after yesterday's decent durable goods report.

The number of weekly jobless claims has also increased in recent weeks, reaching 251k last week; they are expected to continue rising to 253k.