On Friday we had the Q2 GDP figure from the US. Not only did it come in way below expectations @ 1.2% annualized, Q1 was adjusted down to 0.8%, the fourth quarter in a row where the adjustment has been down. To top it off, Q4 2015 was adjusted further down to 0.9%. This was the quarter where the Fed finally responded to their apparent perception of a recovery and raised rates.
As the numbers were released in Washington, a 150 miles north-east in Philadelphia, the clean-up was under way after the Democratic convention nominated Hilary Clinton as Presidential candidate. Perfect timing, as the more-of-the-same candidate could not be accused of brushing over the news in her acceptance speech a few hours earlier. The uncomfortable fact is that 8 years of Obama hasn’t got much to show for it, and Hilary is hardly brimming with fresh ideas. Her main selling point is that she is not Donald Trump. Husband Bill did try to portrait her as the change candidate, but even the democratic electorate are not dumb enough to believe that.
The US economy is stalling, and if the Bureau of Labour Statistics would calculate a true inflation figure, it is quite possible that the economy would now be in official recession. As the fears of a Brexit induced worldwide collapse resides, the GDP figure serves up a new excuse for the Fed to hold off on the widely expected next rate rise. It is however unlikely that the Fed will stop talking the economy up just yet, with the Presidential election looming. Janet Yellen does not want to rock the boat and compromise the chances of Clinton, her guarantee of a longer spell in the chair persons seat. Remember, Trump has indicated he would replace her. But markets are slowly waking up to reality. Few now thinks the Fed will move before the fall. We continue to believe the Fed will not move at all this year, and when the move comes, it is most likely going to be back down.