Welcome to your weekly macroeconomic round-up, where we spotlight a few of the most significant events in the last week.
US economy grew by 1.6% in Q2, falling short of expectations
US GDP growth for the second quarter of 2021 rose slightly to 6.5% on an annualised basis. Effectively this means the economy grew by 1.6% on the previous quarter. This fell well short of the 8.5% annualised growth expected by economists but was still sufficient in returning the size of the US economy to its pre-pandemic size for the first time.
Underling the headline growth rate, consumer spending was particularly strong, increasing by 11.8% on an annualised basis, as households spend down the stimulus cheques received between mid-March and early April. Points of weakness were focussed within business, as private investment fell and inventories were run down due to continued supply chain disruption.
Eurozone GDP growth better than expected as vaccinations drive recovery in activity
Aggregate Eurozone GDP growth rose to 2% on the quarter, above economist expectations of 1.5%. The sharp rebound followed the 0.3% drop in Q1 when major parts of the bloc were engulfed by the second wave of COVID-19. Since that time, the ramp up in vaccinations has led to sporadic opening of economies although the delta variant has caused complications in some regions.
US Fed signals that “progress” is being made towards inflation and full employment goals
The US central bank moved one step closer to tightening its ultra-loose monetary policy this week, declaring that it had made “progress” towards its goals of full employment and 2% average inflation. The comments come as US inflation remains well above the Fed’s 2% target although the communication suggests that these price pressures are transitory and would ease in the coming months.
The rhetoric marks an incremental step in the forward guidance programme that signals to investors and economists that tapering of Fed asset purchases is on the horizon. Typically, such communication would be expected to result in falling bond prices and increasing bond yields as the Fed would be a less prominent buyer of fixed income securities, however, the yield on US Treasuries has fallen from its peak of 1.75% in March and remained stubbornly unmoved this week, at roughly 1.25%, following the news.
Markets
The latest round of regulatory action in China weighed heavily on Chinese stock markets last week, with Chinese technology companies leading the sell-off in share prices. Although most recovered slightly towards the end of the week, shares in private education companies – at whom the regulation was targeted – remain as much as 60% lower than their level a few weeks ago.
Look out for next week’s update, where we’ll be focusing on US jobs report and ECB / BoE central bank meetings.
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