Global Growth Crossroads: diverging Momentum and a policy

The latest data suggests that the global economy is at a defining crossroads. In the U.S., revised Q2 GDP now stands at a robust 3.3% annualized, buoyed by stronger personal consumption and a surprising rise in core capital goods orders that point to underlying investment resilience. Yet consumer confidence slipped in July, inflation expectations rose, and the Chicago PMI remains deep in contraction at 41.5, underscoring a near‑two‑year manufacturing downturn that fuels recession narratives. The Fed’s forward guidance, shaped by Powell’s Jackson Hole remarks, hints at a 25‑basis‑point cut in September but stresses a data‑dependent path thereafter, leaving the policy horizon uncertain amid a cooling labor market, rising initial jobless claims and persistent sticky inflation (PCE 2.6% YoY, core 2.9%).

In parallel, mortgage applications surged more than 12% week‑over‑week, suggesting a tentative rebound in housing demand that could be offset by the 0.4% dip in pending home sales and the broader ambiguity over rate cuts. We believe that the U.S. will likely see a modest easing of policy in September, but any further cuts will be contingent on a clear deceleration in price pressures and a demonstrable softening of the labor market. The confluence of higher inflation expectations, a still‑tight credit environment and a weakening manufacturing sector creates a delicate balance for the Fed: support demand enough to avoid a hard landing, yet avoid reigniting price pressures. Consequently, equity valuations that are heavily weighted toward cyclical exposure should be approached with caution, while sectors that benefit from the ongoing services‑led expansion—particularly technology‑enabled consumer services and high‑margin industrials with strong order‑backlogs—remain relatively attractive.