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July 04, 2019

Global Economy: Pervasive sloth

  • The United States (US) added a meek 75,000 payroll jobs in May signaling weakness in the labor market
  • China's manufacturing sector is weakening as suggested by a contraction in official manufacturing Purchasing Managers' Index in May
  • Energy index fell in May led by a sharp fall in European natural gas prices

While Q1 growth surprised on the upside in many economies, high-frequency indicators suggest the momentum may be too weak to continue into Q2. Consumption and investment spending has weakened in most economies. Inflation, too, has been sedate, with a minor bump-up owing to volatile crude oil prices. The threat of a growth slowdown still looms, and the US-China trade dispute and Brexit aren't helping.


As growth sputters and inflation pressure eases, most central banks are turning dovish. The European Central Bank (ECB) has suggested maintaining its benchmark policy rate at the 0% level, at least until the first half of 2020. The US Federal Reserve has also adopted a softer tone in its recent public addresses, signaling a pre-emptive rate cut is on the cards. On the currency front, the safe-haven currencies, namely the dollar index and the yen, gained while the others tracked on-month losses amid rising trade-related uncertainties.