- In the US, the manufacturing ISM indicator increased to 48.9, its highest level since August 2008 and durable goods orders were strong in July. The cash for clunkers scheme was a success, leading to 690,000 trade-ins for new vehicles at a cost of $2.9 billion to the government from the subsidised scheme. This has helped clear auto inventories and added to production. In other positive news, the rate of contraction in employment continued to moderate and the unemployment rate showed a surprising fall of 0.1% to 9.4%. The all important housing market continued to show improvement, with decent gains in new and existing home sales for July. House prices on the Case Shiller index showed their second consecutive monthly increase in July. On the negative side, the services ISM indicator fell to 46.1, going against the generally improving trend of economic indicators. July was another month of disappointing retail sales and consumer confi dence indicators were mixed.
- In Europe, it was a similar trend, with widespread improvement across many indicators. Germany and France GDP rose by 0.3% in the June quarter, a positive surprise against widespread expectations of further economic contraction. Business confidence surveys such as the PMIs and Germany's Ifo index continued to improve. The UK PMI broke through 50, becoming the first of the G7 countries to achieve this.
- Economic data were stronger across Asia, with widespread increases in GDP in the June quarter across Japan, China, Singapore, Hong Kong, Malaysia, Philippines, Korea, Thailand, Taiwan and Indonesia, with double digit annualised gains for half of those countries. Indicators pointed to further expansion in the second half of the year. Attention turned to China where, despite strong data by world standards, there were tentative signs that the economy was coming off the boil, with the government actively trying to rein in excessive spending by tightening the capital of banks, slowing loan growth and planning to take steps to curb excessive investment in sectors facing over capacity.
- In Japan there was a change of politics with a new government elected. The Democratic Party of Japan beat the ruling LDP, which has governed Japan almost continuously since 1955.
- As the recovery from economic recession gets underway, attention is focusing on central banks and their strategies for tightening monetary policy. Of the G51 central banks, the Bank of England actually increased its quantitative easing programme by £50 billion to £175 billion. The Central Bank of Israel became the first central bank to tighten policy, raising its policy rate by 25 basis points (bps) to 0.75%. The Reserve Bank of Australia hinted that it no longer had an easing bias and that the next move would be upward.
- The global economic recovery is expected to broaden and intensify over the next six months, but the key for markets is whether a decent period of economic growth can be sustained throughout next year or whether the bounce in growth will peter out.
Read the full AMP Capital Investors August 2009 Investment Brief.