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Macroeconomic update: Strong consumer, weakening manufacturing

14:02 26 July 2019
  • US Q2 GDP beats, manufacturing PMI slows
  • Downturn in Europe deepens
  • GDP recovery in South Korea temporary

US – strong consumer a headache for the Fed

That’s not quite the data mix the Fed hoped to get just ahead of its pivotal July meeting. Slowing manufacturing (PMI down to 50) and trade (exports growth lowest in 3 years) show that the US is not immune to global headwinds. However, years of strong labour market make consumer resilient and this resiliency boosted Q2 GDP to 2.1% annualized – lower than in Q1 (3.1%) but still healthy and above expectations (1.8%). It might be too late for the Fed to withdraw the rate cut promise but president Powell might be cautious when it comes to promising more. Speaking of next week, do not forget that the Fed will be followed by the NFP report on Friday.       

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US Q2 GDP was only about consumption – private and public. Investments and trade withdrew from growth. Source: Macrobond, XTB Research 

Europe – downturn deeps

For Europe the week was mostly about the ECB but in the background we got the data proving that more action from the central bank is warranted. Flash PMIs from Germany and France point at a clear deterioration, especially in manufacturing, while the German Ifo index slid to the lowest level of the decade! From the EURUSD perspective flash inflation data (starting from Monday in Spain) published next week will be the most crucial, while investors will also watch preliminary Q2 GDP.

German manufacturing is already at the euro-crisis lows with the rest of the EMU “catching down”. Source: Macrobond, XTB Research

Asia – few signs of improvement 

This week wasn’t particularly eventful in Asia as we had only 2 relevant data releases: inflation in Japan and Q2 GDP in SKorea. Japanese inflation remains low (0.9%) and that ensures the BoJ needs to stay accommodative (or even think of doing slightly more – the next meeting is on Tuesday). Korean GDP looked as a surprise at first but a 1.1% quarterly growth follows Q1 contraction of 0.4% and was to certain extent fueled by public spending while private investments remain weak. Next week will bring a series of PMIs and retail sales data in Australia so it will be much more interesting.

Investors remain pessimistic about that Korean stock market where the KOSP200 remains in a downtrend. Source: xStation5

This content has been created by XTB S.A. This service is provided by XTB S.A., with its registered office in Warsaw, at Prosta 67, 00-838 Warsaw, Poland, entered in the register of entrepreneurs of the National Court Register (Krajowy Rejestr Sądowy) conducted by District Court for the Capital City of Warsaw, XII Commercial Division of the National Court Register under KRS number 0000217580, REGON number 015803782 and Tax Identification Number (NIP) 527-24-43-955, with the fully paid up share capital in the amount of PLN 5.869.181,75. XTB S.A. conducts brokerage activities on the basis of the license granted by Polish Securities and Exchange Commission on 8th November 2005 No. DDM-M-4021-57-1/2005 and is supervised by Polish Supervision Authority.

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