Oil down 2% as more ‘happy spending’ Americans suggest July Fed hike

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Investing.com — Americans are complaining about inflation and the economy at every chance they get. Yet, they are spending like there’s no tomorrow, according to the latest consumer confidence data that came ahead of a Fed-monitored inflation reading that could result in another rate hike by the central bank next month.

Oil markets fell Tuesday as investors brooded over the on July 26, with economists predicting another quarter percentage point hike that will boost lending rates to a peak of 5.5%.

New York-traded West Texas Intermediate, or , settled down $1.67, or 2.4%, at $67.70 per barrel, after an intraday low at $67.58. The U.S. crude benchmark has had a volatile June and is still poised to end the month down 0.6% after an 11% drop in May.

London-traded crude was down $1.92, or 2.6%, at $72.26, after a session bottom at $72.39. Like WTI, the global crude benchmark has had a rocky June, and is headed for a near-flat finish for this month after May’s 9% loss.

“The U.S. economy and labor market are going gangbusters and that should be wonderful news for oil bulls, if not for the fact that inflation is also super stubborn and the Fed has to do with more with rates, which, in turns, will come back to screw the economy,” said John Kilduff, partner at New York energy hedge fund Again Capital.

New home sales up 20% year-on-year, consumer confidence at 2-year high

Sales of in the United States jumped 20% year-on-year last month while a measure of consumer confidence spiked too, data showed on Tuesday ahead of the release later in the week of a key inflation reading watched by the Federal Reserve.

Sales of freshly-constructed homes were up 12.2% in May from April, and up 20% from a year ago, according to a joint report from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.

The better housing numbers were evidence that the new construction market was being boosted by exceptionally low inventory of for sale. Sales of existing homes have been down for the past few months while new home sales have been rising because homeowners with ultra-low mortgage rates are reluctant to sell and buy at a much higher rate.

On the front, the Conference Board said a measure that looks at how consumers feel about the economy right now rose to 155.3 in June from 148.9. That was the highest reading of its kind in nearly two years.

A confidence gauge that looks six months ahead, meanwhile, moved up to 79.3 in June from 71.5, the highest for this year.

The consumer confidence reading shows that Americans think inflation will continue to slow and that they expect prices to rise 6% in the next year, the lowest reading since the end of 2020, the Conference Board data showed.

Americans spending like they think economy is in good shape

Taken together, the home sales and consumer confidence readings showed that although consumers have been complaining over the past year about the state of the economy, they were spending as though the economy was in good shape.

The consumer action is important because it is likely to be reflected as well by the Personal Consumption Expenditures, or PCE, index reading for May due on Friday. 

In the 12 months through April, the headline index, as well as , which strips out volatile food and energy prices, were running well above the Fed’s 2% target.

The inflation numbers will feed into investor expectations around the Fed’s next rate decision in July after the central bank paused tightening at its June meeting but signaled more hikes ahead. 

Traders on the lookout for weekly supply-demand data

Market participants were also on the lookout for U.S. weekly oil inventory data, due after market settlement from API, or the American Petroleum Institute.

The API will release at approximately 16:30 ET (20:30 GMT) a snapshot of closing balances on U.S. crude, gasoline and distillates for the week ended June 23. The numbers serve as a precursor to official inventory data on the same due from the U.S. Energy Information Administration on Wednesday.

For last week, analysts tracked by Investing.com expect the EIA to report a build of 1.415 million barrels, versus the 3.831M barrel reduction reported during the week to June 16.

On the front, the consensus is for a build of 1.359M barrels over the 0.479M barrel rise in the previous week. Automotive fuel gasoline is the No. 1 U.S. fuel product.

With , the expectation is for a climb of 0.085M barrels versus the prior week’s gain of 0.433M. Distillates are refined into , diesel for trucks, buses, trains and ships and fuel for jets.

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