Data out of the United States on Friday showed that the country’s gross domestic product (GDP) expanded by 2.5 percent in 2018, not at a rate above 3 percent as President Trump originally claimed. The report highlighted that U.S. economic growth slowed in the second quarter of 2019, growing at a rate of only 2.1 percent, compared to the growth of 3.1 percent that was achieved in the first quarter of the year. The slower growth was due to decreasing exports and fewer investments in businesses. Still, the low economic growth in Q2 was better than the expected 1.8 rate of expansion that analysts had forecast, due in part to increased government and consumer spending.
Lingering concerns about the U.S. economy have given rise to expectations that the U.S. Federal Reserve will cut interest rates a quarter point after its July policy meeting on Wednesday. If they make this move, this will be the first interest rate cut in over a decade in the U.S.
Despite the struggles facing the U.S. economy, there are still many signs of growth, including what is expected to be a strong jobs report this Friday as well as the start of a solid earnings season which is expected to continue through this week. Last week, the S&P 500 and the Nasdaq hit new all-time highs, prompted both by the strong earnings reports and the expectations of a rate cut this week. Nearly one third of S&P 500 companies will be reporting this week. Thus far, three quarters of companies have beaten estimates and nearly sixty percent have beaten revenue expectations.
What remains to be seen is whether or not the coming interest rate cut is the start of a time of monetary easing, or whether it’s just a once-off measure to help correct the economic downturn.
Market Movements
The U.S. dollar index was trading lower early Monday morning, down 0.05 percent to 97.96 .DXY as of 11:02 a.m. HK/SIN. The greenback eased 0.14 percent against the yen, to 108.51. It was also down against the euro, with the common currency up 0.06 percent to $1.132. The U.S. dollar was unchanged against the Canadian dollar.
On the stock markets, Asian benchmarks were broadly lower, with the exception of the ASX 200, which was up 0.21 percent. South Korea’s Kospi weathered the steepest losses, down 1.72 percent, while Hong Kong’s Hang Seng Index was down 1.16 percent. Japan’s Nikkei 225 eased 0.55 percent, and both of China’s benchmark indexes, the Shanghai Composite and the Shenzhen Composite, were both lower as well. Pressuring Asian markets are fresh concerns that this week’s renewed trade talks will not be fruitful as well as trader anxiety about the upcoming Fed meeting.