Commentary: US economic outlook improves
Investor sentiment was elevated last week, with favorable economic releases and corporate earnings serving as main catalysts. Broadly speaking, growth stocks outperformed their value peers in the face of major earnings announcements. Tech-focused companies also performed well, as shown by the 2.0% rally in Nasdaq Composite.
In the US, major news was the lower-than-expected core personal consumption expenditure (PCE) index which declined from 4.6% y/y to 4.1% in June. Moreover, wage growth has also moderated to 1.0% q/q.
On the activity side, 2Q23 GDP and June durable goods orders both surprised on the upside. GDP grew by a stunning 2.4% q/q (vs 1.9% forecast) while durable goods rose 4.7% m/m (vs 1.0% forecast). As both activity and inflation data seem to be moving in a favorable direction, investors are increasingly hoping for soft landing scenario.
Chinese equities rallied as well. The main catalyst was the government’s announcement on the planned stimuli to boost the economy that underperformed the analyst expectations in 1Q23. Importantly, inflation in China is very low (close to zero), which implies there is a large room for expansionary policy.
