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From a macroeconomic perspective:
• The US: A rebound in activity
The US economy rebounded in Q2 with strong economic activity, underscoring the temporary nature of the first quarter slow down. The economy remains on track with expanding industrial production and positive signals in the service sector, supported by a buoyant labour market. Meanwhile, inflation remains short of the Federal Reserve’s target, calling into question a third interest rate hike later this year.
• The UK: The coming back of the doves
The UK economy has rebounded slightly in the second quarter with varied performance across sectors. While the service sector staged a comeback, industrial production and construction disappointed. An easing in inflationary pressures in June combined with a slowdown in the economy over the course of H1 took the wind out of the BOE hawk’s sails, leaving monetary policy on hold. Given the economic backdrop, we do not expect the BOE to hike interest rates any time soon.
• The Eurozone: Strong growth in Q2
The Euro area experienced strong real GDP growth in Q2 with a pronounced rebound in industrial activity across countries and a positive performance in the service sector. Meanwhile, inflation remained short of the ECB’s target, providing little support for substantial tightening in monetary policy. We expect the Governing Council to prolong the quantitative easing program by another six months in the autumn, while reducing the amount of purchases to €40bn.