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Europe may face impending stagflation

The Eurozone’s economic growth slowed in the second quarter, despite accelerating inflation.

Eurozone inflation rose by 2.1 per cent in the year to July – its fastest pace since 2012. But economic growth failed to keep up and grew by just 0.3 per cent on a quarterly basis. It could mean Europe is facing stagflation, a period of rising inflation and stagnant growth. This would be a conundrum for the European Central Bank as it is forced to raise interest rates to curb increasing inflationary pressure.

In the US, Apple Inc yesterday, 31 July released its second-quarter earnings, which beat analysts’ expectations. The tech giant’s revenue reached $53.3 billion, having recorded earnings per share of $2.34. Apple’s share price rallied in after-hours trading to $197.95, bringing the company ever closer to the $1 trillion valuation.

My focus today is on the health of the US labour market and particularly the changes in the non-farm private sector employment, according to Automatic Data Processing (ADP). Economists forecast 185,000 new workers would have got jobs.

Finally, the Federal Reserve (Fed) will announce its interest rate decision at 19:00 (GMT). I anticipate the central bank will leave the rates unchanged. However, the Fed will also release its Monetary Policy Statement, which should provide more insight into the bank’s strategy until the end of 2018. Meanwhile, the Dollar Index, a basket of currencies weighted against the greenback, has rallied by more than 7 per cent from its yearly nadir to 94.62, and any hawkish rhetoric will boost the Dollar further.

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