[B]The week capped of a powerful performance for equity markets.[/B] Strong earnings drove the S&P 500 Index up approximately 6.7% for July, while the NASDAQ index increased more than 7%. For the week, the S&P 500 declined by approximately 1 point, as investors digested a plethora of economic data points.
[B]The remarks from Fed member Bullard (who has been one of the most hawkish Fed members in the past) are worth a mention and do little to revive confidence in the US economy.[/B] St Louis Fed James Bullard stated during the week that deflation is a concern in the US and that the Fed should use aggressive Quantitative Easing if it needs to stimulate the economy further. Even if Bullard does not advocate an immediate use of QE, these remarks come as a bit of a surprise considering his usual hawkish rhetoric style and bearing in mind that not so long ago, exit strategy and guessing the timing of the first Fed rate hike were central market themes. These remarks mean that the Fed is not ignoring the much softer tone that has emerged in recent economic data. The market, policy makers may have been caught by surprise and this clearly confirms that the market had been highly optimistic in pricing in Fed rate hikes by August or even by year-end. The Fed will contemplate other stimulating policy measures than rate cuts if need be, but there is a split in opinions when it comes to assessing the merits of further QE . The dominant assumption that the Fed will start raising interest rates before the ECB may start to be questioned. The ECB is holding its regular policy meeting next week, and it is expected to confirm a policy of wait and see, but the monetary authorities may acknowledge the improving growth environment of the past few weeks and if anything, that could bring forward, not push backward the timing of the first expected ECB monetary policy action.
[B]On Friday, the Commerce Department reported that U.S. gross domestic product rose at an annualized seasonally adjusted rate of 2.4% during the second quarter.[/B] In its first estimate of the economy’s benchmark indicator, the government report showed growth was lifted by business investments and exports. Consumer spending, a key growth engine for the U.S. economy, made a smaller contribution to growth. Consumer spending rose by a moderate annualized rate of 1.6% in April to June. The Commerce Department also revised down the years/quarters during the recession. GDP fell by 4.1% from the fourth quarter of 2007, when the recession officially began, and the second quarter of 2009, when many economists believe it ended. The previous estimate for the overall decline was 3.7%.
Analysis provided by Exto Capital