Summer lull continues; but investor focus this week on German GDP figures, Fed meeting minutes

Investor focus on US FedUS Fed

The summer lull may continue to dampen stock market activity during the month of August, but there are two key events on the agenda this week which will attract investor attention. Firstly there is German Q2’17 GDP data due out today. According to Intermoney analysts “the figures will serve to confirm the Eurozone’s current favourable economic situation, with German growth seen accelerating to 0.7% quarter-on-quarter and 1.9% from a year earlier.”

“We also expect the data to reflect an overall good performance with regard to domestic consumption and external demand,” Intermoney says.

While today’s figures will show German growth remains solid, market experts have recently highlighted that the latest batch of economic growth numbers from other Eurozone countries show that the extent of the region’s recovery is widening, with countries like Spain coming to the fore.

On Wednesday, focus crosses the Atlantic to the release of the minutes of the Fed’s late July meeting. Is the US central bank still shrugging off weak inflation and looking to raise interest rates for a third time this year? Minutes of this meeting could provide some clues. In the communication following the last FOMC meeting, the expression “relatively soon” was used to refer to the start of Fed’s balance sheet normalisation. But Intermoney says this fact “should not be exaggerated”, given that these words have already been used by Fed Chair Janet Yellen in the same context. And the analysts add:

“In June, it was stated literally that “the Committee hopes to begin to implement the balance sheet normalisation programme this year.” At that time, taking into account that the last FOMC meeting of 2017 will finish on December 13, the time frame suggested was 6 months and a month and a half of that will already have gone by.”

“So in IM we believe the September meeting will be when there will be some news on the reduction of the Fed’s balance sheet.”

Intermoney also flags that the minutes of the July meeting will provide “a glimpse of an optimistic bias with regard to activity in the US, in line with the results of Reuters last survey.”According to the survey, analysts expect growth to last for at least another two years, which would mean the longest period of economic expansion in the US in the last 150 years.

“But the results also showed that US GDP will not grow as expected after Donald Trump’s electoral victory. The US president aimed to boost growth to 3% via tax cuts; someting which has not materialised due to the lack of support from the legislative chambers,” Intermoney says.

The Fed’s opinion on how inflation is faring will also be reflected in the minutes of its July meeting. Intermoney highlights that in July, the CPI accelerated by one tenth of percentage point to 1.7% from a year earlier, while core inflation was stable at 1.7% year-on-year.

“As a result, we could see more optimistic messages from the Fed as far as prices are concerned,” the analysts say.