FED: Musalem Open-Minded To Further Easing But Limited Room To Do So

RRP usage climbs to $29.400B with 18 counterparties this afternoon from $22.915B Tuesday. Compares to $17.923B on Wednesday, Sep 3 - the lowest levels since early April 2021. This year's high usage of $460.731B occurred on June 30.

• Date $MM Issuer (Priced *, Launch #)
• 09/09 $3B #Saudi Aramco $1.5B each: 5Y Sukuk +70, 10Y +80 (books were over $16.5B)
• 09/09 $3B *IDA (International Development Assn) 7Y SOFR+55
• 09/10 $3B *KFW 3Y SOFR+30
• 09/10 $1B *Federal Home Loan 2Y +3.5
• 09/10 $1B Light and Wonder 8NC3 6.5%a
• 09/10 $900M K Hovnian Ent $450M each: 5.5NC2.5, 8NC3
• 09/09 $500M *Korea Housing Finance Corp (KHFC) 5Y +40
• 09/10 $500M #Bidvest WNG 7NC3 6.2%
• 09/09 $500M #Komatsu Finance AM 5Y +62

• Released shortly after the July ECB meeting, real GDP growth was a little better than analysts expected in the Q2 advance release at 0.1% Q/Q (cons 0.0) after a strong 0.6% Q/Q in Q1. Subsequent revisions haven’t materially altered this trend, if anything marginally on the stronger side with the Y/Y rounding up to 1.5% Y/Y.
• The recent final release put real GDP growth at 0.12% Q/Q in Q2, helped by a large +0.5pp coming from change in inventories whilst final domestic demand dragged -0.2pps for its joint largest decline since late 2022.
• The latter points to a marked cooling in underlying demand although it does follow a strong 0.7pp in Q1 and 0.6pp averaged in 2H24. As such, final domestic demand growth at 1.8% Y/Y remained a little above that of real GDP growth.
• The final report also showed that nominal GDP grew 0.8% Q/Q (vs 0.7% prior) and 4.0% Y/Y (vs 3.9% prior) in Q2. On a sequential basis, Q2 nominal growth was mostly inflationary – real growth was 0.1% Q/Q while GDP deflator growth was 0.7% Q/Q. However, on an annual comparison there is a growing contribution from real growth to nominal GDP, reflecting a gradual recovery in activity as ECB past rate cuts feed through the system (real growth was 1.5% Y/Y in Q2, versus deflator growth of 2.5% Y/Y).
• We calculate that profits contributed 0.6pp to annual nominal GDP growth after just 0.1pp in Q1 and negative contributions in the three quarters prior, with the impact of US tariffs on Eurozone exporters' profits key to watch in the quarters ahead.