Harbour: Northern autumn uncertainty
Global macroeconomic momentum
Global bond yields continued to rise in the first half of August, as macroeconomic data pointed to ongoing economic momentum. The US 10 year yield reached as high as 2.95% in mid August – a considerable rise from the lows of 1.6% in May this year.
Purchasing Manager Indices (PMIs) point to solid economic expansion in the US (and NZ), and Europe moving out of period of economic contraction (Chart 1).
In our view, the US economy has illustrated enough momentum to justify the US Fed announcing at its upcoming September meeting that it plans to ‘taper’ QE. However, while getting the process started, we expect that they will take a cautious approach, and perhaps only scale back their asset purchases from $US85bn per month to $US70-75bn per month. Furthermore, they are likely to reiterate that the overnight US fed funds rate is likely to stay near zero for the next couple of years.
Chart 1. Global Purchasing Manager Indices (PMIs) - Manufacturing
Source: Bloomberg.
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