Strong growth continues at start of Q3…

Business surveys suggest that, after picking up in the second quarter, the world economy started Q3 on a strong footing. The upturn in Q2 was concentrated in advanced economies and was led by household spending, particularly in the US. Employment has been rising at a decent pace in all the major advanced economies, but there has been no sign of a pick-up in wage growth, and core CPI inflation in the US remains at its lowest level for over two years. Accordingly, we expect the Federal Reserve to leave interest rates on hold in September, and although the ECB looks set to taper its asset purchases next year, it will probably leave its deposit rate unchanged (and negative) until 2019. Overall, this positive economic backdrop should continue to provide some support for global equity markets.