Macro Weekly – On track for stronger growth

by: Han de Jong , Nick Kounis

Big Picture: We have long maintained that global growth would accelerate in the second half of the year with the US in the lead, Japan close behind, at least for the time being, Europe following at a respectable distance and emerging economies struggling a little more to find an accelerating growth trajectory. Recent data give us no reason whatsoever to change that view. In fact, some of the data, on business confidence in particular, almost suggests that someone turned a switch exactly mid-year to get the momentum going.

Eurozone: ECB President Draghi stepped up his campaign to dampen expectations of monetary tightening, explicitly communicating that current expectations for rate hikes in money markets are ‘unwarranted’. However, markets paid no attention because he also admitted that the ECB was not actively considering rate cuts. The ECB may well need to strengthen its forward guidance further.

US: The FOMC left its statement broadly unchanged, holding off from any hints of a slowing of the pace of its asset purchases. Subsequently, nonfarm payrolls were weaker than expected in July, though we remain confident that the labour market recovery is still firmly on track. Despite these developments, we still think that the Fed will announce a gradual slowing in the pace of its asset purchases at the September meeting.

Asia: China’s NBS PMI rose to 50.3 in July compared to 50.1 in June. This reading contrasted with the Markit PMI survey, which declined further. This left a mixed picture of the surveys in July. We remain of the view that the economy should regain some traction in the coming months.