US GDP back to pre-Covid level

But still below trend

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Chart of the Day

US GDP growth came in weaker than economists expected in Q2, at 6.4% annualized, but that still meant it rose to above the pre-Covid level. While that is a good sign, it still means GDP is below the trend it was following before the lockdowns. Thanks to the huge amount of fiscal support, most economists think that lost ground will be made up within the coming quarters, provided Covid remains under control.

Macro

Growth was weaker than the ISM implied, although the ISM overstated growth for a period before Covid as well.

The eurozone ESI rose further in July, a good sign for GDP there.

Sweden, often thought of as a bellwether given its large exposure to global demand, is also seeing its business surveys improve sharply.

US initial jobless claims remain elevated, not a good sign for next week’s payrolls.

UK mortgage credit has gone vertical.

The early German data showed inflation rose to its highest since 2008.

Markets

The Russell 2000 has outperformed the S&P 500 in the past week, but it had fallen further from its earlier high.

Wholesale gasoline prices continue to rise, now close to their highest in several years.

The copper/gold ratio has diverged from the 10-year bond yield, but the divergence was even greater in 2007, well before the Fed started QE.

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