US:

The IMF stated in a latest update that US economy has proven itself to be robust, dynamic, and adaptable to changing global conditions. Activity and employment continue to exceed expectations and the disinflation process has been considerably less costly than many had feared. Nonetheless, the fiscal deficit is too large, creating a sustained upward trajectory for the public debt-GDP ratio. The ongoing expansion of trade restrictions and insufficient progress in addressing the vulnerabilities highlighted by the 2023 bank failures both pose important downside risks.

The US economy has turned in a remarkable performance over the past few years. Hysteresis effects from the pandemic did not materialize and both activity and employment now exceed pre-pandemic expectations. Real incomes were diminished by the unexpected rise in inflation in 2022 but have now risen above pre-pandemic levels. Job growth has been particularly fast, with 16 million new jobs created since end-2020. However, income and wealth gains have been uneven across the income distribution and poverty remains high, particularly following the expiration of pandemic-era support.

The IMF noted that the outlook for US economy is for continued healthy growth supported by a significant (and ongoing) rise in household wealth which should bolster consumer demand. Homeowners, in particular, have benefited from an almost 50 percent increase in the average house price since end-2019.

The US economy grew by slightly more than previously estimated in the first quarter of 2024, according to a report released by the Commerce Department. The report said gross domestic product jumped by 1.4 percent in the first quarter compared to the previously estimated 1.3 percent increase. The GDP growth in the first quarter still reflects a notable slowdown compared to the 3.4 percent surge in the fourth quarter of 2023.

The US manufacturing sector remained in growth territory at the end of the second quarter of the year. Although client demand remained muted and business confidence hit a 19-month low, new orders rose for a second month running. In turn, production continued to rise, albeit at a weaker rate. The seasonally adjusted S&P Global US Manufacturing Purchasing Managers’ Index (PMI) ticked up to a three-month high of 51.6 in June from 51.3 in May. The index signaled a modest monthly improvement in business conditions.

Eurozone:

The HCOB Eurozone Manufacturing PMI, a measure of the overall health of eurozone factories and compiled by S&P Global, fell for the fourth time in the past five months during June. Declining from May’s 14-month high of 47.3 to 45.8, the survey’s headline measure signaled a solid and accelerated deterioration in the health of the eurozone’s manufacturing sector. June’s renewed slide means the HCOB Eurozone Manufacturing PMI remains well below its survey average (51.6).

Eurozone economic confidence weakened unexpectedly in June, suggesting that the economy remains weak, survey data published by the European Commission showed. The economic confidence index posted 95.9 in June, down from 96.1 in May. The score largely reflected broadly stable sentiment in industry, and among consumers and service providers, while confidence in construction and retail deteriorated from May. The industrial confidence index unexpectedly weakened to -10.1 in June from -9.9 in May. The services sentiment index posted 6.5 in June, down from 6.8 a month ago. At -14.0, the consumer confidence index was up from -14.3 in the previous month. The retail trade sentiment index deteriorated to -7.8 from -6.8 in May. Likewise, the construction confidence index declined to -7.0 from -6.2 in the prior month.

German consumer confidence is set to deteriorate in July as the economy struggles to gain momentum, a closely watched survey showed. After rising for four straight months, the consumer climate index dropped to -21.8 in July from -21.0 in June, the survey published jointly by GfK and the Nuremberg Institute for Market Decisions showed. In June, income and economic expectations suffered moderate losses, and the propensity to buy dropped slightly and continued to stagnate at a very low level. On the other hand, the propensity to save indicator rose 3.2 points to 8.2 in June.

In first week of June, the European Central Bank (ECB) Governing Council decided to lower its three key ECB interest rates by 25 basis points. Based on an updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission, it is now appropriate to moderate the degree of monetary policy restriction after nine months of holding rates steady. Since the Governing Council meeting in September 2023, inflation has fallen by more than 2.5 percentage points and the inflation outlook has improved markedly. Accordingly, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be decreased to 4.25%, 4.50% and 3.75% respectively, with effect from 12 June 2024.

UK:

The UK manufacturing upturn continued at the end of the second quarter. June saw output and new orders both expand for the second successive month, with rates of expansion remaining close to the highs reached in May. There was a modest upswing in cost inflationary pressures, with input prices rising at the quickest pace since January 2023. The seasonally adjusted S&P Global UK Manufacturing Purchasing Managers’ Index (PMI) registered 50.9 in June, down slightly from May's 22-month high of 51.2 and below the earlier flash estimate of 51.4. The PMI has posted above the neutral 50.0 mark – signaling expansion – in each of the past two months.

In Q1 2024, the British economy grew by 0.3% year-on-year, slightly above the initial estimate of 0.2%, rebounding from a 0.2% decline in the previous quarter. The services sector rose 0.4%, and production increased by 0.3%, while construction fell by 0.4%. Public spending increased by 3.4%, though household consumption, business investment, exports, and imports saw declines. Quarter-on-quarter, GDP expanded by 0.7%, surpassing the initial estimate of 0.6% and exiting recession.

Japan:

The au Jibun Bank Japan Manufacturing PMI was revised to 50.0 in June 2024, down from 50.1 initially and 50.4 in May, marking the second consecutive month of sector expansion. This was driven by job creation, backlog clearing, and stock-building. Factory output increased for the first time in over a year, despite a drop in new orders due to declining foreign sales. Employment rose for the fourth straight month, though modestly. Purchasing activity decreased for the 23rd month, and delivery times improved. Input price inflation hit a 14-month high, leading to the highest rise in selling prices in over a year. Sentiment reached its best level in 2024 so far.

Industrial production in Japan was up a seasonally adjusted 2.8 percent on month in May, the Ministry of Economy, Trade and Industry said. On a yearly basis, industrial production was up 0.3 percent. Upon the release of the data, the METI maintained its assessment of production, saying that it fluctuates indecisively but has weakened.

Asia-Ex-Japan:

The manufacturing sector in China continued to expand in June, and at a faster pace, the latest survey from Caixin revealed on Monday with a manufacturing PMI score of 51.8. That's up from 51.7 in May, and it moves further above the boom-or-bust line of 50 that separates expansion from contraction. Manufacturing output expanded at the quickest pace in two years, with firms in the consumer segment once again recording especially sharp output growth in June. This was driven by higher new work inflows, attributed to new product launches and market development efforts by manufacturers. Export orders also continued to rise, though both the rates of new and export order books growth declined from May.

Profits of China's industrial firms grew by 3.4% year-on-year to CNY 2,754.38 billion in the first five months of 2024, down from 4.3% in the prior period, amid a fragile economic recovery. State-owned firm profits fell by 2.4%, while private sector profits rose by 7.6%.

Foreign direct investment (FDI) into China plummeted by 28.2% year-on-year to CNY 412.5 billion from January to May 2024, marking a record drop.

The Reserve Bank of Australia maintained its interest rates at a 12-year high for a fifth straight meeting. The policy board of the RBA, led by Governor Michele Bullock, decided to hold the cash rate target at 4.35 percent. The interest rate paid on Exchange Settlement balances was also kept unchanged at 4.25 percent. Inflation is easing but has been doing so more slowly than previously expected and it remains high, the bank noted.

Outlook:

The global financial markets will continue to focus on interest rate dynamics in near term. According to the World Bank, global inflation is expected to moderate to 3.5% in 2024 and 2.9% in 2025, but the pace of decline is slower than was projected just six months ago. Many central banks, as a result, are expected to remain cautious in lowering policy interest rates. Global interest rates are likely to remain high by the standards of recent decades—averaging about 4% over 2025-26, roughly double the 2000-19 average.