IMF raises global growth forecast

The IMF has raised its global growth outlook in its latest forecasting round, now predicting global GDP growth of 3.0% in 2023, compared to its April projection of 2.8%. The upgrade was driven largely by a 0.2pp boost to the US growth forecast, to 1.8%, and the UK being upgraded to 0.4% growth rather than a 0.3% contraction, although developed markets are still lagging with a 1.5% growth projection as Germany was downgraded. Emerging market and developed economies were forecast to expand by 4.0% this year, down 0.1pp from April. Within the region, the Middle East and Central Asia is projected to growth by 2.5% this year, down from 2.9% forecast in April, with Saudi Arabia forecast at 1.9% this year, down from the previous projection of 3.1% as oil production curbs weigh on output.

The US conference board consumer confidence report for July surprised to the upside at 117.0, beating predictions of 112.0 and the previous month’s 110.1. This was a two-year high for the index, with the  recovery being driven by optimism from respondents around business conditions down the line. Nevertheless, consumer spending plans are becoming more circumspect, suggesting that the Fed’s aggressive tightening cycle is increasingly starting to influence behaviour.

Following on from Monday’s PMI report, there was more disappointing data out of Germany yesterday in the form of the IFO survey, the results of which suggest that the Germany economy, the largest in the Eurozone, remains in recession at the start of Q3. The headline reading was 87.3 in July, down from 88.6 in June and weaker than the predicted 88.0. The current assessment was the stronger of the two subcomponents, but that also deteriorated, to 91.3 from 93.7 previously. Expectations were at 83.5, down from 83.8 but just stronger than the 83.4 the previous month. The survey remains well below its long-run average.

Today’s Economic Data and Events

• 18:00 US new home sales, June. Forecast: 725,000
• 22:00 US FOMC rate decision. Forecast: 5.5% (upper bound)

Fixed Income

• Moves in US treasury yields were mixed on Tuesday, with the 2yr UST declining 5bps to 4.874% and the 10yr rising 1bps to 3.884%.
• The 2yr UK Gilt yield rose 5bps to 4.92%, while the 10yr yield rose 1bps to 4.255%. There were relatively small moves in German Bund yields on the day with the 2yr yield gaining 2bps to 3.023%, and the 10yr yield rising 1bps to 2.418%.

FX

• Sterling gained against the dollar on Tuesday, with GBPUSD rising 0.6% to reach 1.2902. In contrast EURUSD declined 0.1% to 1.1055.
• Commodity currencies were mixed against the dollar on Tuesday, with AUDUSD jumping 0.79% to reach 0.6792 and NZDUSD rising 0.3% to 0.6221, while USDCAD rose fractionally to 1.3172.

Equities

• Equity markets were positive yesterday, starting in Asia where the pledge of some moderate stimulus by the Chinese government in the shape of support for the real estate sector led to a 4.1% gain on the Hang Seng. The Shanghai Composite also benefitted, adding 2.1%. In Japan, however, the Nikkei closed down 0.1%.
• Gains were more sedate in Europe, with markets seemingly biding their time until the outcome of this week’s big central bank meetings are known. The DAX added 0.1% and the FTSE 100 0.2%, but the CAC ended down 0.2%.
• In the US, the NASDAQ was the big gainer as tech stocks reported good earnings – the tech-heavy index added 0.6%. The Dow Jones closed 0.1% higher and the S&P 500 gained 0.3%.
• Locally, the DFM closed 0.5% higher while the ADX lost 0.1%. In Saudi Arabia the Tadawul closed up 0.7%.

Commodities

• Oil prices rose again on Tuesday, with Brent futures adding a further 1.1% (after Monday’s 2.1%) to close at USD 83.6/b. WTI also rose 1.1% to USD 79.6/b.
• These represent multi-month highs for oil prices, even as they have softened a little in early trading on Wednesday. Hopes are rising that a soft landing in the US and more stimulus in China could see oil demand growth remain firm through the close of the year.