Take Two: US economy beats expectations; China cuts key interest rates to support growth
What do you need to know?
The US economy expanded by more than expected in the second quarter (Q2), at an annualised rate of 2.8%, significantly up from the 2.0% market forecast, and Q1’s 1.4%. The faster growth was primarily on the back of increased consumer spending, on both goods and services. Despite the better-than-anticipated reading, the overall slowdown is still consistent with the Federal Reserve (Fed) easing policy in September and December. Meanwhile, Vice President Kamala Harris secured support from a majority of Democratic delegates for the party’s presidential nomination following President Joe Biden’s withdrawal from the race. The official nomination is likely to take place between 1-7 August and before the Democratic National Convention in August.
Around the world
China cut several of its key interest rates last week as it seeks to boost borrowing and spending against a backdrop of slowing economic growth. The People’s Bank of China (PBoC) cut its benchmark one-year and five-year lending rates by 10 basis points (bp) and also eased its short-term policy and market operations rates. Subsequently, it lowered the cost of its medium-term lending facility by 20bp, seen as a further effort to support growth. China’s economy expanded slower than expected in Q2, at 4.7% year on year after 5.3% growth in Q1.
Figure in focus: 50.1
Eurozone business activity fell to a five-month low in July due to a steep downturn in manufacturing which a slower expansion in the services sector only partly offset, flash Purchasing Managers’ Indices (PMI) showed. The Eurozone composite PMI slowed to 50.1 from 50.9 in June – a reading above 50 indicates expansion - as new orders decreased for the second consecutive month and business confidence dropped to a six-month low. The bloc’s manufacturing PMI eased to 45.6 from 45.8 with production down to the largest extent in the year to date, while the services PMI fell to 51.9 in July from 52.8.
Words of wisdom
NeuralGCM: A new artificial intelligence (AI) model, developed by the European Centre for Medium-Range Weather Forecasts and Google, has advanced the accuracy in long-range weather and climate simulations, according to its founders. The technology, which could help manage the effects of climate change such as flooding and wildfires, combines machine learning with conventional atmospheric forecasting tools to predict decades-long climate trends as well as extreme weather events faster than traditional forecasting and more precisely than AI-only models. While it currently only models the Earth’s atmosphere, its creators suggest there is the potential to cover other aspects of the climate system such as oceans and carbon cycles.
What’s coming up?
Monetary policy will dominate the week ahead - on Wednesday both the Fed and Bank of Japan hold their respective interest rate setting meetings, while the Bank of England follows on Thursday. In terms of economic updates, on Tuesday the Eurozone releases a flash estimate for Q2 GDP growth as well as a series of surveys including the latest Economic Sentiment and Consumer Confidence measures. On Wednesday, the bloc will also publish its latest inflation figures. The US issues its employment numbers on Friday.
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