Macro Highlights July 13th 2015

Economic outlook - 7/14/2015

Our Investment Research Department publishes a weekly newsletter with a round-up on the main economic developments and news flow.

Grexit averted

As Jean Paul Sartre once said, "Confidence is won by the drop and lost by the bucket." One can easily picture it trickling through the fingers of an outstretched hand. Ironically, the study of fluid dynamics began in ancient Greece. But since then some Greeks have no doubt attached scant importance to the fact that Archimedes’ rules were set for all time. Confidence cannot be decreed, nor should it be taken for granted. It is the result of an ever changing relationship.

With Greece’s banks still closed and totally dependent on credit lines with the European Central Bank (ECB), it is becoming increasingly hard for the country’s creditors to trust its political leaders. Here is a quick recap of recent developments (...)

Should the troika continue extending aid to prevent Greece from going bankrupt and leaving the Euro Zone? Or should it stop?


Back to the us growth story

The purchasing managers index has been retracing since bottoming out in the first quarter, when severe winter weather slowed economic activity. Consumer confidence is back up to near its pre-2008 levels (see right-hand chart on preceding page), growth in consumption is running at 3% year on year and, since the financial crisis, the unemployment has fallen from 10% to 5.3%—near its NAIRU level.

The weekly number of worker resignations illustrates that the US labour market has regained flexibility. This is boosting wages. Thus, although core inflation still shows no clear sign of moving up, the five-year forward inflation expectation is already at 2.14%.. (...)

How will the stockmarket sell-off impact companies?

Last week we pointed out that the recent meltdown in Chinese equities would likely have a limited knock-on effect on domestic consumption. Now it is only right that we should consider the links between the stockmarket and China’s corporate sector and the probable repercussions of the pullback on business activity.  

A significant fall in domestic (A-share) prices automatically increases the capital cost for companies that want to tap the markets, prompting them to put off and even cancel previously planned spending on plant and equipment. (...)