Blue Horizon: Stronger growth and dovish central banks

Blue Horizon: Stronger growth and dovish central banks

Thomas Trauth, Blue Horizon Wealth Partner AG (Foto: Blue Horizon).

Zurich – June macro-economic data were very firm. PMIs mostly improved; the US ISM index, for example, remained at an elevated level of 55.3 in June, slightly below the 55.4 reading in May. The US nonfarm payrolls rose by 288,000 workers in June, beating the consensus forecast by a wide margin and following a gain of 224,000 in May.

Since US GDP fell by a remarkable 2.9% QoQ annualized – the most significant swing in GDP growth for a long time – everything points to a significant positive growth figure for Q2. While weather conditions account for a large part of the Q1 drop, economists are still hard put to explain why Q1 growth fell so steeply. The official Chinese PMI came in at 51.0 in June after 50.8 in May, the strongest reading this year.

European PMI disappointed
Meanwhile the European PMI disappointed and fell to 52.8, down from May’s 53.5. However, the PMI sub-index measuring the growth in new orders improved, which signals better growth prospects later this year. Since the ECB is very concerned about low and falling inflation rates, analysts and market participants are paying close attention to European inflation figures. According to the latest estimates, inflation remained stable in June at 0.5% YoY, which is in line with consensus forecasts. While inflation in Germany rose some-what, other member countries such as Spain and Italy experienced falling inflation rates. Spanish inflation fell to 0.0% YoY vs 0.2% YoY and Italian inflation fell to 0.2% YoY vs 0.4% YoY.

ECB: Quantitative easing not off the table
The ECB met on July 3 for the first time after their June meeting and the announcement of the new TLTRO program, which is designed to boost bank lending in Europe. Mr Draghi revealed additional details of the program, which appears to be very complicated. However, Mr. Draghi also revealed that the program will be a little more generous than previously thought. It may reach a volume of EUR 1 tn. Furthermore, the ECB announced that from January 2015 it will publish an “account” of each governing council meeting, which represents an alignment with the practice of other central banks. It has not yet been decided whether the votes of each of the 24 members will be made public. Also, the frequency of the meetings will change from a 4-week cycle to a 6-week cycle. Mr Draghi reiterated that quantitative easing, i.e. the ECB’s engaging in a broad-based asset purchase program, is not off the table. The ECB is ready to deploy such a program if the infla-tion outlook should change. The next inflation forecast will be published in September. (BH/mc/hfu)

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