July was all sunshine and lollipops as growth continued to surprise on the upside.
Inflation moderating and risks resurgence
Inflation is softening and reaching the lowest levels since the peak inflation a year ago. In the U.S., Canada and U.K., inflation has surprised to the downside suggesting that the central banks’ policies may be starting to curtail the worst of inflation. Long-term inflation expectations have also returned close to the neutral rate between 2-3%.
Economic growth remains resilient with signs of bottoming in manufacturing activities
U.S. real GDP growth has been surprising to the upside with the latest quarter-over-quarter growth at 2.4%. The growth momentum continues to be strong, as indicated by the most updated Nowcast by Atlanta Fed showing 3.9% growth in Q3 23. The forward-looking estimates has also seen a number of upward revisions, raising the year-over-year growth consensus forecast now to 1.6% for the year 2023.
Strength in corporate earnings extending economic expansion
The Q2 earnings season is in full swing and companies has been widely beating consensus estimates which were set at a very low bar at –7.8% year-over-year growth prior to the start of the season. Of the 365 companies that have reported, profitability was also more resilient than expected, with 83% companies beating expectations on earnings, while only 55% companies beating expectations on revenues.
