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Macroeconomics data confirm that US economy is doing well

31 July 2017

A few things caught our eyes this week :

  • Oil inventories released Tuesday were well below expectations. Crude oil is up +8.4% on the week, and this pushed US bond yields higher

  • US economy data with the Q2 GDP release, which was long expected. It rebounded to +2.6% vs +2.7% expected. We have confirmation that Q1 weakness was temporary. US economy is still performing well. The negative point was the Employment Cost Index which continues to grow at a very slow pace. Wage growth, the main inflation driver, is still missing

  • As expected, Fed kept its rate unchanged on Wednesday night, the accompanying statement was perceived as dovish by investors

  • Eurozone inflation data surprised on the upside. Germany, in particular, is up +1.7% year over year. Nevertheless, German bond yields are up only a mere +2bps on the week

  • Last but not least, corporate earnings were decent on average. 57% positive surprises in Europe, 77% in the US. That helped the S&P to a new all-time high

Our convictions remain unchanged. We continue to think US bond yields are too low and markets should anticipate more Fed hikes. We therefore remain bullish on the dollar. 

Our view is right, US 10-yr yields are +6bps vs +2bps for bunds this week.

We remain bullish on Euro equities and Emerging markets. These two areas exhibit solid macro performance and we think they should continue to attract inflows.

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