Snapshot
Economic data released over the previous month were again mostly disappointing, overshadowed by the political impasse ahead of the default deadline in the United States and a looming crisis in Greece that was spilling over to other European economies. In the United States, the protracted negotiations to avoid a looming default have finally concluded. On 31 July, Congressional leaders of both parties agreed to raise the country’s borrowing ceiling by USD 2.1 trillion and cut the federal deficit by USD 2.1 trillion over the next ten years. Markets reacted positively to the announcement. However, the prospect of a U.S. default -- even if ultimately avoided -- is likely to leave a crack in investor confidence that in the long term may come at the price of a higher risk premium. Meanwhile, virtually all economic indicators point to the downside. Economic growth came in at a dismal annualised 1.3% in the second quarter, according to preliminary figures. Moreover, unemployment remains stubbornly high, home prices continue to fall, consumer confidence slides and manufacturing PMI, which so far had withstood the overall downward trend, tumbles.
