Economic Growth to the Forefront

The markets' focus should be on US and global economic growth, as well as corporate earnings, this week.  The last US economic reports before the advance report on Q219 Real GDP will be released.  So, the 1.6% Atlanta Fed model's estimate and 1.8% consensus could change before the GDP report is out on Friday.  Note that the latter will contain benchmark revisions, which makes these estimates even more uncertain.  Flash July European Markit PMIs are due Wednesday.  They should be even more important than US GDP -- they are more current than Q219 GDP and also bear directly on the downside risks upon which Powell justifies a Fed easing.

The Q219 Real GDP report is probably more backward looking than usual for a GDP report.  This is because most of the weakness during the quarter occurred in April-May.  June-July US economic data have begun to improve.  Temporary factors, such as weather, were probably partly responsible for the earlier weakness (see my June 9th blog).  With economic growth apparently already speeding up, a Q219 print in excess of the 1.9% consensus could undercut market expectations of more than one 25 BP Fed rate cut this year.  Real GDP Growth greater than 2.0% is viewed to be above-trend by the Fed.

Improvement in the European Markit Mfg PMIs probably need to be substantial to change the Fed's concerns about downside global risks.  Many of the PMIs are below 50 and some would have to move sharply higher to get back to expansion territory.

                                                        Market Mfg PMI (level)
                   Europe          Germany        France          UK         Italy        Spain                  
May             47.7                 44.3                 50.6            49.4        49.7           50.1             
June            47.6                 45.0                 51.9            48.0        48.4           47.9

I post comments after many US economic data releases on LinkedIn and Twitter