Key highlights of the week ended August 28

Source: Dukascopy Bank SA
US
The US economy grew more than previously estimated in the second quarter, supported by robust consumer and business spending. The world's number one economy expanded at an annual rate of 3.7% in the April-June quarter, more than a percentage point greater than the 2.3% originally estimated. It was the strongest growth since last summer and marked a great improvement from the anemic 0.6% increase during the January-March quarter when a harsh winter undermined activity. Economists believe growth has slowed in the current quarter to around 2.5%. Some have expressed concern that shrinking global stock markets and a steep slowdown in China will further weaken the economy in coming months. The revision for second quarter growth reflected an advance in consumer spending, which rose at annual rate of 3.1%, up from a 1.8% growth rate in the first quarter. Business investment in structures and equipment was revised higher to show growth of 3.2%, while housing construction was revised up to a surge of 7.8%.

China
The People's Bank of China injected 140 billion yuan into China's economy last Wednesday, in latest attempt to prop up slowing economic growth, fuelling investors concerns over a "hard landing". The PBoC injected billions of yuan into the interbank money market through a short-term liquidity operation. The central bank introduced SLOs in 2013 as a supplement of its monetary policy tools in a bid to smooth fluctuations in liquidity and stabilize interbank funding costs.  In addition to that, the central bank cut the one-year benchmark bank lending rate by 25 basis points and reserve requirements by 50 basis points for most big banks. The People's Bank said that the interest rate cut was to reduce "the social cost of financing to promote and support the sustainable and healthy developments of the real economy". It also acted to raise the flow of money in the economy by cutting the amount of cash banks must keep in reserve, effectively freeing them to lend more cash.

UK
The second estimate of Britain's GDP showed no revisions to both quarterly and annual readings of economic growth. The UK economy was confirmed as one of the fastest growing western countries in the second quarter, as economic output expanded 0.7% between April and June, marking the tenth straight quarter of positive growth. Measured on an annual basis, the economy grew 2.6%. Growth in the June quarter was primarily supported by a strong services sector, climbing 0.7% and contributing to quarterly growth with 0.6 percentage points. The UK economy is predicted to remain resilient this year supported by "twin engine" of increased household spending and strong investment growth, according to the Confederation of British Industry, which forecasts an interest rate hike in early 2016. The CBI upgraded its growth outlook for the British economy. The business lobbying organisation now expects the UK economy to expand 2.6% this year up from 2.4% predicted in June. The CBI also improved its forecast for 2016, estimating GDP growth of 2.8%, up from 2.5%. Quarterly growth is anticipated to increase at an average pace of 0.7% through to the end of 2016.


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