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In the view of the analysts at Australia and New Zealand Banking Group (ANZ), Friday’s downbeat US economic releases back the case for more dovishness from the Federal Reserve (Fed) in the coming months.

Key Quotes:

“US housing starts fell 4% in July (to 1.19m saar) marking a post-November 2016 low. Housing starts have now fallen for three consecutive months, weighed down by tariffs which have hit the housing sector by forcing up construction costs. However, there is a glimmer of brightness in that permits surged 8.7%, the most since June 2017.

Meanwhile, the preliminary August release of the University of Michigan consumer sentiment came in weaker than expected falling 6.3pts to 92.1. Current conditions dropped 3.3pts to 107.4 and expectations fell 8.2pts to 82.3.

Despite ongoing strength in the US labour market, concern about the outlook appears to be creeping into US consumers’ psyche. In spite of the fall, both the 1-year and 5-10-year measures of inflation expectations rose 0.1%pts to 2.7% and 2.6% respectively.

All up, dataflow continue to support the case for dovishness from the Fed, particularly given ongoing weakness in manufacturing and now current building projects.”