Contrasting Economic Landscapes - Europe's Contraction vs. America's Resilience

Data releases for the month of August have brought stark contrasts between economic performances across different regions. Europe faces a challenging landscape with signs of contraction and economic distress, while the United States continues to demonstrate robust growth. Asia, on the other hand, experiences mixed signals with China grappling with real estate issues while Japan shines with better-than-expected economic growth.

Europe's Economic Challenges

Europe's economic indicators in August have been disappointing across the board. Both the services and manufacturing sectors are in contraction, falling below expectations. Retail sales and GDP, particularly in Germany, have performed poorly. Factory orders in Germany have also seen a sharp decline; and the region is grappling with high inflation, which remains stubbornly high at 6.1%. These numbers collectively paint a picture of economic contraction and uncertainty in Europe.

United States' Economic Resilience

In stark contrast, the United States continues to exhibit a strong economic performance. Non-manufacturing data suggests a booming economy, while weekly employment statistics indicate full employment. This resilience is fuelling the Goldilocks narrative and hopes for a soft landing in the U.S. economy. Some, like Governor Waller, advocate for a pause in interest rate hikes to let the previous rate increases take full effect.

Mixed Signals in Asia

Asia presents a mixed picture with China facing challenges in its domestic sector due to a real estate overhang, which accounts for a significant portion of the country's economic activity. China's imports and exports are retracting, adding to concerns.

In contrast, Japan has shown promise with an annualised Q2 GDP growth rate of +4.8%, although it falls slightly below expectations.

Global Equity Markets and The Outlier

Global equity markets have suffered in the wake of these contrasting economic performances. With the exception of the FTSE in the UK, which benefited from better-than-expected production numbers, most global markets have seen declines.

An outlier in the markets has been the continued rise in oil prices. WTI briefly touched USD 90 per barrel, driven by reduced production from major oil-producing nations like Russia and Saudi Arabia. The surge in oil prices is a concern as it has direct consequences for inflation, which remains high. This issue could loom large as we head into the fall and winter months.