Talking international economies and the Fed
Economic data was light last week, but political discussions remained at the forefront of market-moving news. Greek debt, Chinese stock markets, and Federal Reserve (Fed) meeting minutes created some modest market volatility, but did not alter our view on the global economy.
- Negotiations for a new bailout continued into Sunday night in Europe. Markets cheered the outcome, which requires Greece to legislate a number of austerity measures by July 15 to restart negotiations over the bailout. We believe a deal is still the most likely outcome rather than a disorderly exit. Economic activity should continue to contract in Greece, but Europe overall should see modestly positive growth due to the support from the European Central Bank (ECB) quantitative easing (QE) plan.
- China policymakers continue to use extraordinary measures to prop up the stock market, which finally rallied to end last week. The domestic stock market in China is generally controlled by local investors and is not particularly linked to global economic activity. We believe the government will remain on a path of liberalization, which will include the further opening of markets to foreign investors, and could result in the renminbi becoming a member in the International Monetary Fund’s (IMF) Special Drawing Rights (SDR) basket of currencies. Economic growth is likely to continue to slow as the economy adjusts from being investment driven toward becoming more balanced with consumption.
- Minutes from the June Federal Open Market Committee (FOMC) meeting did not alter our view that they will conclude their zero interest rate policy at the September meeting. Some analysts have pointed out that the meeting took place prior to the recent showdown over Greek debt and much of the selloff in the domestic equity market in China. However, recent speeches by FOMC committee members provided further support of our view, particularly if economic data remains solid. Rising job openings, solid payroll growth, and improving wage growth appear to support our view.
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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