Daily Brief - 31 May 2024

US economy slows down due to weak consumer spending

The US economy grew at a slower pace of 1.3% in the first quarter, down from the initial estimate of 1.6%. This was mainly because people spent less on goods, especially cars.

Consumer spending rose by only 2.0%, lower than the previous 2.5% estimate. High interest rates and lower savings affected spending. However, business and home investments were stronger.

The Federal Reserve's preferred inflation measure rose slightly slower than expected, and incomes grew more than first thought.

ECB to make fewer rate cuts as inflation risks persist

Economists predict the European Central Bank will start reducing interest rates next week, beginning with the first of six planned quarter-point cuts. However, they now expect fewer cuts overall due to persistent inflation risks.

Despite a strong economic rebound and ongoing wage pressures, the ECB, led by President Christine Lagarde, faces challenges in clearly communicating its rate cut strategy.

Inflation remains the primary concern for the euro-zone economy, and the ECB is likely to proceed cautiously with future rate adjustments. Traders now expect only two rate cuts this year, down from earlier predictions.

US slows AI chip exports to Middle East post security concerns

The US has slowed down the approval of licenses for Nvidia and AMD to export AI chips to the Middle East due to a national security review. This delay affects large-scale shipments to countries like the UAE and Saudi Arabia.

The review aims to develop a strategy for the deployment and security of these advanced chips, which are crucial for AI data centers. The concern is that these chips might be diverted to China, a country restricted from accessing cutting-edge American technology.

Stocks of Nvidia and AMD were affected by the news. The Commerce Department emphasises its priority is protecting national security while collaborating with Middle Eastern partners.