SUMMARY
- US equities flat, attention switches from QE taper to data and earnings
- Emerging market equities rebound on China stimulus hopes
- China outlines policy framework and minimum acceptable GDP growth rates
- Euro area recovery gaining momentum with stronger July PMI Developed economies continue to strengthen. The US saw better-than- expected manufacturing purchasing managers’ index (PMI) and durable goods orders readings. Although this was offset by weak Richmond Fed manufacturing and existing home sales numbers, the broad trend remains up. Meanwhile, Euro area data suggests the economy is climbing out of recession.
Chinese PMI data however continued to disappoint, highlighting the divergence between the economic growth trajectories of emerging and developed markets. Emerging market equities gained some courage from Chinese fiscal policy initiatives and the Government’s commitment to minimum growth targets. But this is unlikely to be sufficient to reverse the underperformance of Chinese equities over coming weeks and possibly months, as large scale monetary or fiscal expansion remains unlikely while the government pursues long-term and possibly painful structural reforms. These developments continue to support our near-term overweight on US and Japanese equities and our longer-term overweight for Asia ex-Japan equities.
