Welcome to your weekly macroeconomic round-up, where we spotlight a few of the most significant events in the last week.
US inflation stabilised in July but remained at a 13-year high
US consumer price inflation steadied at a 13-year high in July, at a rate of 5.4% over the last 12 months, higher than expected by economists. Underlying the data, price pressures seem to be easing. This is best reflected by the measurement of ‘core’ inflation – stripping out volatile elements such as food and energy prices – which fell from 4.5% in June to 4.3% in July.
The data is especially relevant in the context of the Federal Reserve meeting due to take place this week, where central bank officials will discuss and communicate their view of the trajectory of the economy, consumer prices and, ultimately, the outlook for monetary policy in the US. Although consumer price inflation has now been above the 2% central bank target since March of this year, the Fed has long communicated that the price pressures are most likely transitory and linked to the rapid transition from social distancing restrictions to reopening over the last 12 months. Nevertheless, the next step in monetary policy will almost certainly be the tapering of asset purchases.
Japan GDP grows marginally as COVID-19 cases remain high
Japanese GDP grew by 0.3% in the second quarter of 2021, following a 0.9% contraction in Q1. Over the past year, Japanese growth expanded at a rate of 1.3%. Compositionally, business spending and consumer spending both recovered slightly from the first quarter contraction while robust external demand led to an increase in exports.
The world’s third largest economy experienced a relatively benign 2020 in terms of COVID-19 cases and restrictions but has suffered this year as logistical issues delayed the vaccination programme. Meanwhile the highly virulent Delta variant swept through the economy, causing high numbers of infections. This has led to a series of extensions to national and regional states of emergency which have hampered consumer and business activity.
UK GDP growth accelerated in the second quarter of the year
After a brief slowdown in May, UK economic growth re-accelerated in June, rising by 1% over the month. For the quarter this brings the growth rate to 4.8% compared to the first quarter over the year. The successful vaccination programme, alongside the removal of restrictions, has led to significant rebounds in activity levels, particularly in services and hospitality. Overall, this leaves the UK economy 2.2% smaller than it was at the start of the pandemic last year.
Geopolitics dominated market sentiment in the last week, focusing on Chinese regulatory action and the US withdrawal from Afghanistan. The former was the most powerful force in terms of market impact so far, prompting another week of losses for emerging market equity indices, particularly focussed in China.
It is more difficult to ascertain the effects of the latter, however, President Biden’s decision to fully withdraw US troops from Afghanistan and the Taliban’s swift takeover of the country has led to what seem to be the beginnings of a flight to safety. Both gold and US Treasuries – which tend to be regarded as the safest investments in times of geopolitical uncertainty – have risen in price over the last two days.
Look out for next week’s update, where we’ll be focusing on the Fed minutes and the PBOC meeting.
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