The biggest announcement this month came from the European Central Bank (ECB).  Mario Draghi, President of the ECB, announced the lowering of their key interest rate by 0.1% and that the ECB will begin buying asset backed securities and covered bonds to boost liquidity in the private sector.

More details of the purchasing programme will be provided on October 2nd, but the market expects the size of the programme to be between EUR 500 billion to 1 trillion as the ECB aims to expand its balance sheet back to where it was in 2012.  Some of the driving factors behind this surprise (or rather sooner-than-expected) decision have been the risk of deflation with preliminary Euro area inflation rate falling to 0.3% y/y for August and slowing GDP growth rates.  In particular, q/q GDP growth for Germany (Europe’s largest economy) was at -0.2% for Q2, 2014.

US real GDP growth accelerated to an annualised rate of 4.0% in 2Q14, with a higher than expected inventory build-up making a significant contribution. More forward looking indicators suggest Q3 growth should stay robust if the current trend continues. Composite survey data (mix of manufacturing and services sectors) from the ISM and Markit both have activity accelerating to new highs in the current economic expansion. That said, indicators on the health of the labour market were mixed. Non-farm payrolls disappointed, coming in at 209,000. In contrast, initial jobless claims have been steadily decreasing over the past month. Elsewhere, those market participants fearing a near-term rate increase would have welcomed the inflation data over the past month. After rising in recent months, core CPI slowed to 0.1% m/m in July, while hourly wage growth is running at 2.0% y/y.

In the US, the final real GDP data that was released in June for the first quarter of 2014 was worse than expected at -2.9%. There was no reaction from the market suggesting that investors have already written off the US economy’s first quarter performance as a result of their adverse weather conditions.

Subsequently, June’s nonfarm payrolls surprised on the upside with an additional 288,000 jobs being created. This resulted in the unemployment rate declining from 6.3% to 6.1%. Combined with positive manufacturing purchasing manager index, the US recovery looks to be progressing solidly. Markit and ISM PMI came out at 57.3 and 55.3 respectively.

It’s taken more than six years, but US payrolls have now exceeded their pre-GFC peak. May’s report showed an additional 217,000 jobs were created – further evidence of a solid recovery in the labour market. Following on from April’s significant decline, the unemployment rate held firm at 6.3%, as did the participation rate at 62.8%.

 In a strange turn of events, the Institute for Supply Management had to issue two corrections to its key manufacturing activity index for May. The original release of 53.2 had suggested a weakening in the pace of manufacturing activity, but it was later discovered to have been the result of a software glitch. The final correction came in at 55.4 – much more in line with the Markit PMI reading of 56.4, which showed an acceleration in output.

The US economy continued on an upward trajectory based on the latest set of data released in April. Personal income and consumer spending for March grew at a faster rate than the market expected. The Labour market appears to be strengthening with non-farm payroll jobs increasing by 288,999 for April and the unemployment rate falling to 6.3% from 6.7%. However, this was driven by a material drop in the participation rate of 806,000 (down to 62.8%). Both the Markit and ISM manufacturing PMI indices, both measures of manufacturing activity, printed at solid levels. Conversely, GDP growth slowed over the first quarter of 2014 to 1.3%. This was likely due to adverse weather which appeared to be already priced in with little market movement when the data was released.