Jun 14, 2024 | Insights


U.S. Economic Resilience Amidst Mixed Signals: Q2 GDP Expansion Despite Political Turbulence

Real-time estimates of 2Q GDP continued to point to a further quarter of economic expansion,
despite the fact that U.S. data was typically poorer in April. May’s manufacturing survey data
revealed mixed results: the S&P Global series continued to show expansion, while the ISM series
dropped to 48.7 points. There were cautious indications of labor market slack in April: job growth
and vacancies slowed, and the unemployment rate increased to 3.9%, which is still low by
historical standards. Positively, the April announcement showed that U.S. inflation for the first
time this year met rather than above forecasts. YoY, headline and core inflation decreased to
3.4% and 3.6%, respectively. Powell said that the rate cut was postponed but not canceled when
the FED kept interest rates constant in May. In the political sphere, Trump became the first former
president to be found guilty after being found guilty of all charges in his “hush money” case.

Europe: Mixed Growth Signals, Inflation Pressures, and Central Bank Actions Amid Political Shifts

Growth indices in Europe maintained. The composite PMI index for the eurozone showed a pick-
up in growth in May, although the UK version stayed in expansion territory. UK GDP numbers
confirmed the country’s brief technical recession earlier in the year. Inflation figures, however,
exceeded expectations: headline inflation increased in Switzerland (1.4%) and the eurozone (to
2.6%). After Ofgem’s energy price ceiling was reduced once more, headline inflation in the UK
dropped substantially to 2.3%; yet wage growth and services inflation remained high. In contrast,
a more negative storyline evolved in Europe: the ECB was getting ready for a rate cut in June, and
the Swedish Riksbank became the second developed market central bank to start its cycle
of rate cuts. Money markets tended toward a cut in the fall, despite the BoE more divided
and impartial position. In the UK despite the Conservative Party’s dismal performance in
the local elections, Sunak unexpectedly declared national elections for July.

Asia: Geopolitical Tensions Escalate Amid China’s Economic Resilience
and Real Estate Woes

While economic data in China was strong, with consensus GDP predictions for 2024
hovering around 5%, issues in the real estate industry persisted in spite of fresh
government assistance initiatives. The geopolitical environment remained unstable in the
interim. Conflicts in the Middle East showed few signs of resolution, Putin warned NATO
about the use of weapons supplied to Ukraine, and China conducted military exercises
around Taiwan. Biden also announced new tariffs on China in critical areas such as
semiconductors and electric vehicles.

Market Impact

The world’s financial markets saw a strong rally in May, regaining the losses from the
previous month and momentarily hitting record highs. Despite a minor increase in market
participation, gains were still led by large-cap U.S. stocks. Government bonds saw a rise in
fixed income during the first part of May, but by the end of the month, some of those gains
had been reversed. In certain regions of Europe, including Germany (2.7%) and the UK
(4.4%), ten-year government bond rates hit fresh annual highs due to negative inflation
figures. With the striking exception of Brent crude, which dropped by 7%, commodities
continued to gain overall.

Our Expectations

In Q3 2024, market sentiment suggests a continuation of the bearish trend for the USD,
driven by factors such as cooling inflation and the Federal Reserve’s potential for monetary
policy easing, including interest rate cuts. Despite concerns surrounding inflation, interest
rates, and political gridlock, investors are hopeful that the Federal Reserve’s strategy,
including potential rate cuts, will stimulate financial markets.


This Economic Outlook report was prepared by the N PrimePartners Capital
Investment team.


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