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Sense and sentiment

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  • Yesterday saw significant revisions to GDP, lessening the extent of the economic downturn. The revisions bring the data into line with higher frequency figures (e.g. unemployment) and so are unlikely to change policy per se. The extent of the revisions do underscore the dangers of GDP as a monetary policy target.
  • The Fed's statement indicated some increase in concern about the direction of economic activity �€“ and the language was sufficiently altered as to bring the dovish dissenter back into the fold. However, the language does not rle out a change in liquidity policy in September.
  • Monetary policy lies ahead in the Uk and the Euro area �€“ the UK meeting precedes the 7 August inflation report when some further forward guidance is expected. Changes today therefore seem unlikely. Draghi of the ECB may comment on signs the Euro area has finally hit the bottom in economic growth terms.
  • China's official PMI of manufacturing sentiment was better than expected, the private sector worse, and the Australian PMI very weak suggesting the less positive interpretation of the Chinese economy may be the more accurate). Euro and US manufacturing sentiment lie ahead.

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