It would appear that the slowdown in global manufacturing is at least stabilising. There have also been slightly more encouraging signs from some parts of the euro area that the economy is likewise finding a base. On a different note, the start of the week saw the release of the estimate for growth in the Chinese economy in the second quarter come in at 6.2%. The slowest year on year growth estimate in 27 years. As there was little reaction to the news from equity markets, it further goes to prove that again; bad economic news is once again positive for risk assets.
Blackrock produces a Global Geopolitical risk dashboard. The index represents what they view as the top ten geopolitical risks to the global economy. These include the obvious China-US trade tensions, Middle Eastern tensions, North Korea, Euro area fragmentation. The chart would suggest Geopolitical risk is about as high as it has ever been historically. Geopolitical risk is something that equity markets tend to react quickly to for a short time and then recover losses quickly. Gulf risk tensions, according to Blackrock, are above a ten-year high. The oil price has so far shown little reaction to the increased risk in the Gulf.
One Bank that may struggle to join in the global easing of monetary policy could be the Bank of England. Wage growth, despite the economic uncertainties around Brexit, rose 3.6pct in a three-month period year on year. The pick-up to an 11-year high in May has been driven by the tight job market, not a rise in public sector pay, according to a research report.
Despite our view that the pound may have stabilised the global speculators continue to take a more bearish view as the Great British pound slipped close to 1.24 against the USD. Despite the stronger than expected wage growth and the likelihood, this news will prevent the Bank from cutting interest rates later this year whatever the Brexit outcome., the pound remains unloved.
It feels hard at present to add much value. The global economy remains dull, no one is forecasting an economic recession yet, despite the increased risk. The US economic expansion may have continued for an extended period of time; however, the annualised rate of growth has been one of the slowest going back many years. The earnings season has started with several of the major US banks reporting in the past couple of days. There were indeed no shocks from Goldman, Citi or JP Morgan. Later in the week, we get Microsoft and Johnson and Johnson. How they turn out may have more of an impact on sentiment.