Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
The last decade has not exactly been boom-time, but we might miss it when it’s gone. Central bankers are doing their best to cushion the bumps as the global economy slows, with a new consensus around a new round of stimulus from the world’s two most important central banks.
Yet it will not all be a smooth ride. Asian stock markets fell this morning after the European Central Bank yesterday managed to sow some doubts about just how quickly it will move to support the eurozone economy. Japan’s Nikkei 225 index lost 0.45%, the broader Topix lost 0.4%, while shares on Australia’s ASX 200 lost 0.36% and Hong Kong’s Hang Seng index lost 0.4%. Only the Chinese stock markets bucked the trend.
ECB president Mario Draghi balanced the message that rate cuts are coming with the assertion that the rate-setting governing council had not even discussed cutting rates at this week’s meeting. That contradicted market bets that a July cut was a 50/50 proposition.
However, the message was otherwise fairly clear: anything other than a rate cut at the September ECB meeting would be a shock. Economists will now spend the rest of the summer trying to read the runes of how big the cut will be, and what accompanying measures such as quantitative easing (the stimulative programme of bond buying) will be included.
Ian Williams, an economist at stockbroker Peel Hunt, said:
Draghi described the eurozone economic outlook as “worse and worse”, although he also suggested that the risk of a recession is “pretty low”. He explained that, despite growing employment and wages, external factors are weighing on growth through the second and third quarters; specifically trade uncertainties, a particular challenge for the manufacturing sector. So risks remain tilted to the downside.
Hot on the heels of Draghi’s dour assessment of the European outlook, the main economic event of the day will be the US GDP release coming at 1:30pm BST today.
Economists on average expect an annualised growth rate of 1.9% for the second quarter, a significant slowdown from the previous quarter of 3.1%.
If that does come to pass all eyes will be on Donald Trump’s Twitter account to see whether the US President renews his attacks on the chairman of the Federal Reserve, Jerome Powell. Trump wants looser policy to support the economy, and his re-election prospects.
Powell’s Fed meets next week to discuss their latest monetary policy stance, with investors bets on interest rates implying a 100% chance that the central bank will loosen the monetary taps. This chart from a few days ago shows why: leading indicators appear to show the world’s largest economy is weakening.
Danske Bank Research
(@Danske_Research)??The flash PMIs from @IHSMarkitPMI signals US GDP growth around ~1.5% q/q annualised. In our view the indicators support the call for #Fed easing pic.twitter.com/HkVFuid485
On the corporate news front, a tetchy Sports Direct will report its full-year results at some point today – a week later than initially planned.
The delay was prompted by the complex integration of House of Fraser as well as the “current uncertainty as to the future trading performance of this business”, but this week the company said its figures would be within previousy expectations after all. Life is certainly never dull following the court of founder Mike Ashley.
The agenda
- 11:30am BST: Russia interest rate decision
- 1:30pm BST: US GDP growth rate (second quarter)
- 1:30pm BST: US personal consumption expenditure prices (second quarter)
