An economic update from Colonial First State Global Asset Management.
1 United States
The US Federal Open Market Committee of the US Federal Reserve Board (the Fed) met on 28–29 July 2015 and, as widely expected, held the official cash rate at 0% – 0.25%. On employment, there were further positive signs in July with 223,000 jobs added in the month. The unemployment rate held steady at 5.3%, with the total number of jobs added over the past 12 months now 2.935 million. The first estimate of Q2 2015 GDP was released at 2.3%, on a seasonally adjusted annualised rate, up from a revised 0.6% in Q1 2015 (was –0.2%). Growth in Q2 was driven by improvements in consumer spending while weak business investment and government spending were the laggards. Inflation also remains subdued. Headline inflation rose 0.3% per month in June to be up 0.1% for 12 months. Core CPI (ex food and energy) is 1.8% per year and the Fed’s preferred measure of underlying inflation, the Core Personal Consumption Expenditure, was 1.3% per year stable from May 2015.
2 United Kingdom and Europe
As expected, The Bank of England (BoE) left policy unchanged at 0.5% its 9 July 2015 meeting. Some members of the BoE said that the decision was becoming more finely balanced and that a rate hike near the turn of the year could be appropriate. The advance estimate of Q2 2015 GDP was 0.7% per quarter and 2.6% per year, slightly lower than the 2.9% per year in Q1 2015. In Europe, The European Central Bank (ECB) met on 16 July 2015 and no policy changes were announced. The focus in the first half of the month were the protracted negotiations with Greece which in the short-term were largely resolved with the release of a Euro Summit statement and as the Greek parliament passed two different legislations through parliament as a precondition to commencing official negotiations for a third bailout package worth €86 billion. As a result the ECB increased its Emergency Liquidity Assistance (ELA) for the Greek banks, allowing them to reopen, albeit with a weekly withdrawal limit of €420.
3 Japan
The Bank of Japan’s (BoJ) policy board convened on 15 July 2015 and again left its qualitative and quantitative easing program at an annual increase of ¥80 trillion to its monetary base. Inflation data remained subdued, headline inflation was just 0.4% per year in June, down from 0.5% per year in May. Core CPI (excluding food and energy) was 0.6% for the year to June 2015. This remains substantially below the BoJ target for 2% inflation around September 2016 and continues to raise the possibility of further action by the BoJ. Wages tumbled in June, down 2.4% per year, compared to +0.7% per year in May with a change to the timing of bonus payments the reason.
4 Australia
The Reserve Bank of Australia (RBA) left the official cash rate on hold in July and again in early August at 2%, as was widely anticipated by financial markets. In August, the RBA made a number of slight changes to its view of the Australian economy, once again highlighting its surprise at the strength in the labour market. The statement noted “In Australia, the available information suggests that the economy has continued to grow. While the rate of growth has been somewhat below longer term averages, it has been associated with somewhat stronger growth of employment and a steady rate of unemployment over the past year.”
Quarter 2 2015 CPI data was released showing the headline CPI rose 0.7% per quarter and 1.5% per year. This was a small increase from 1.3% per year in Q1 2015 with most of the increase due to petrol prices which rose 12.2% per quarter. Underlying inflation, the RBA’s preferred measure of inflation trends, rose on average 0.55% per quarter to 2.3% per year, slightly down from 2.35% in Q1 2015.
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