Fast Lane, Slow Lane
28 June 2021
The vaccination programs of each country are moving at a different speeds.
4 min read
28 Jun 2021
Economic Highlights
Welcome to our Economic Highlights, bringing you market updates from across the UK, US, Europe and China, as well as the FTSE weekly winners and losers.
UK
The Bank of England kept policy unchanged, although increased its expectations for Q2 growth to an increase of 5.5% q/q, up from 4.25% last month.
Critically the minutes did not make it clear whether the committee views this to be a genuine strengthening of the economy or simply judges that the rebound in activity is occurring earlier but will ultimately be no greater than previously thought.
Clearly either possibility has a very different implication for the degree of economic slack over the medium term and therefore the appropriate policy response. The minutes also referred to the latest CPI data as ‘material upside news’ and the committee now believes that CPI inflation will exceed 3% for a while at its peak. In May, its median expectation was a peak of 2.5% towards the end of this year.
US
The Fed’s favoured Core PCE Deflator reading of inflation rose to 3.4% in May, as per consensus forecasts. The final reading for the University of Michigan’s Inflation Expectations survey ticked up from 4.0% to 4.2% for the 1-year measure, while the 5-10- year reading remained at 2.8%, suggesting that the average American agrees with the Fed that inflation is, indeed, “transitory”.
In the Consumption element of the PCE report, there was a slight shortfall in consumption of services relative to projections, but this still leaves the US economy on track for second quarter growth of around 8.5% on a q/q annualised basis. It’s also worth mentioning the Capital Expenditure Intentions element of the Philadelphia Fed manufacturing survey, which has the longest history of such surveys. It hit 40.4, the highest level since 1984. This can be interpreted in two ways, probably depending on one’s initial view of the threat of inflation. Optimists will see it as a harbinger of a strong capex cycle that will underpin growth and productivity, whereas pessimists might see it as another source of excess demand in an already tight supply environment.
Europe
Preliminary results of the second round of French regional elections registered dismal showings for next year's leading presidential election candidates. Incumbent Emmanuel Macron’s La Republique En Marche Party and far-right leader Marine Le Pen’s National Rally Party, gathered just 6.7% of the nationwide vote and 20% respectively.
The centre-right Republican Party again fared best. However presidential election polls continue to have Macron and Le Pen as most likely to contest next year’s second round.
China
China’s industrial profits grew 36.4% y/y in May, although this does represent a deceleration. In sequential terms, industrial profit edged up 0.5% m/m, while revenue fell marginally. The profit margin of industrial companies continued to expand as the upstream profit margin improved, more than offsetting the decline.
Source: FactSet
Source: FactSet