Coal tinted spectacles
If you had to boil down the global economy into one category from the options of bad/fair/good, what would you choose? We all experience the economy vastly differently down to an infinite number of variables. But by and large the current phase we are in, characterised by strong global growth rates, record low unemployment and moderating inflation, would result in the most ‘good’ categorisations you’d be likely to get at any time in the last decade. However, in the US, and as we will find more about later today in the UK, there is a growing dissatisfaction within key sectors of the economy. In particular, small and medium sized enterprises are feeling the squeeze.
As we learned recently with the ISM manufacturing data, sentiment within some sectors of the US economy are not feeling as positive about the future as core data might lead you to expect. In the UK, despite holding in expansionary territory, the March PMI publication saw a change of path from a string of above-forecast results to a significant miss. Should PMI data due to be published at 09:30 this morning confirm back to back declines in this survey data, expectations for remedial action from the BoE could accelerate. We have seen GBP undermined by growing expectations for a June/August rate cut and markets will over scrutinise this data to adjust the short end of the rate curve.
Despite a rosy economic backdrop, weaker consumer and business outlooks could undermine the progress made within more fundamental economic metrics. In the US, there are threats that a weaker consumer could undermine the above trend growth that the economy has been experiencing. It is the spending power of the median US consumer that could spill over into weaker aggregate demand, hampering metrics such as growth. Key data including quarterly GDP growth and the Fed’s preferred measure of inflation are due for release this week and will likely prove to be the key focal points of forthcoming trading sessions.
Discussion and Analysis by Charles Porter
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