Mounting inflationary pressures and the continued spread of the Delta coronavirus variant raised fresh questions over the outlook for economic recovery. Financial markets were choppy during July, and investors turned towards the comparative safety of government bonds.
- The rate of US consumer price inflation surged to 5.4% YoY
- China’s economic growth lost momentum
- The eurozone’s economy rebounded in Q2
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Question-marks over recovery: Mounting inflationary pressures and the continued spread of the Delta coronavirus variant raised fresh questions over the outlook for economic recovery. Financial markets were choppy during July, and investors turned towards the comparative safety of government bonds, driving down the yield on the US Treasury bond to 1.24%.
“The Nikkei 225 Index fell to its lowest level since January”
China loses steam: Investor sentiment was knocked by the news that the pace of China’s economic growth had slowed sharply during the second quarter: having expanded by 18.3% in the first three months of the year, the country’s economy grew by a comparatively modest 7.9% in the second quarter. The Shanghai Composite Index fell by 5.4% during July.
Clouds over the land of the rising sun: In Japan, the Nikkei 225 Index fell to its lowest level since January as concerns over economic recovery were compounded by rising infection rates and pessimism over the impact of the Tokyo Olympic Games. The Nikkei 225 Index fell by 5.2% over the month. Nevertheless, business confidence among Japan’s large manufacturers picked up more rapidly than anticipated, according to the Bank of Japan’s quarterly Tankan survey, and government expects the country’s economy to recover to its pre-Covid level within this year.
US inflation surges: In the US, the annualised rate of consumer price inflation surged to 5.4% in June, posting its biggest 12-month rise for almost 13 years, and compounding speculation that the Fed will be driven either to withdraw stimulus measures or raise interest rates from their current level of 0-0.25%. Fed Chair Jerome Powell acknowledged that inflation had increased “notably”, but maintained that these pressures were temporary. Over July, the Dow Jones Industrial Average Index rose by 1.3%.
Eurozone rebounds: Having contracted by 1.3% during the first three months of the year, the eurozone’s economy rebounded to post annualised growth of 13.7% during the second quarter. Spain, France and Italy all notched up growth in excess of 15% during the period; in contrast, Germany’s economy expanded by a comparatively muted 9.8%. Elsewhere, the European Central Bank (ECB) announced it was changing its inflation target of “just below 2%” and instead adopting a “symmetric” target of 2%. The European Commission expects the eurozone’s average rate of inflation to reach 1.9% this year, easing to 1.4% next year. The Dax Index edged 0.3% higher over the month.
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