Jul 23, 201512:34 PMOpen Mic
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Why Q2 growth could be solid (but not spectacular)
Markets kept one wary eye on Greece and China this week, but both these issues seem to have receded to the background for market trends. Instead, economic data moved back to the forefront and provided further support to the market. Inflation rose, industrial production improved, and housing investment ticked higher. The consumer remains well watched, and markets remain concerned about confidence and spending. Retail sales slowed in June, although the trend for the second quarter remained positive. Generally, data seem poised to deliver solid, but not spectacular, second quarter economic growth. As we move through the second half of the year, we believe consumer spending should start to see greater benefits from the windfall in savings due to the decline in energy prices.
Second quarter growth in China was faster than consensus expectations, growing 7% over the past year. Improving money supply growth and increases in stimulus measures likely helped the economy. In general, activity has been slowing its pace of expansion, indicating to us the economy is not likely to see slower growth for the rest of the year. Government support for the domestic stock market required significant stimulus. The cost of this stimulus is a key question for the future, particularly if the cost is to slow financial market reforms. For now, we believe the government intends to move forward with reforms, which should result in the International Monetary Fund adding the renminbi to its Special Drawing Rights basket of reserve currencies. If the government is forced to delay reforms, we would expect further slowing across the economy.
For more information, please go to: https://reserve.usbank.com/insights/market-economic-update.
Robert L. Haworth, CFA, is a senior investment strategist and Darrell Behnke is the Madison market leader for the Private Client Reserve of U.S. Bank.
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