While the expectation for tighter global monetary policy is firmly entrenched, the pace and method of tightening has come more sharply into focus, as has the willingness of central banks to remain “data dependent” through the latter part of the cycle.
Tariff talks, a go/no go decision on the summit with North Korea, and the return of populism in Italy reminded investors of the impact that political decisions – and any exogenous shock – can play on short-term investor sentiment and decision making.
U.S. GDP for first quarter 2018 came in at +2.0% quarter-over-quarter, compared with +2.9% in the fourth quarter. Driving the deceleration in growth was consumption, which slowed markedly to +0.9% for the quarter, down from +4.0% in the previous quarter.
Expectations are for growth of approximately +3.6% in the second quarter, although estimates have receded based on data indicating that consumption and residential investment could be lower than previously predicted.
Manufacturing remains in expansionary territory, as the Institute for Supply Management’s manufacturing survey closed the second quarter at 60.2, up from 59.3 in the first quarter.
Eurozone manufacturing weakened modestly from the first to second quarter, falling from 56.6 in March to 54.9 in June. The decline represents the uneasiness around continued protectionist moves by the U.S.
Employment remains strong, with the U.S. adding an average of 210,000 jobs a month in the second quarter. The unemployment rate closed the quarter at 4.0%, with the participation rate continuing to rise while wage growth remains in check at +2.7% year-over-year.
Consumer prices hit the highest level since 2012 in the month of May, rising +0.2% month-over-month, and +2.8% year-over-year. Even ex-food and energy, the measure grew +2.2% year-over-year.