Downshift in global growth momentum. Markets for week ending 18-Jul.

- The coincidence of combined financial, commodity, and more recently corporate profitability shocks continues to hammer the global economy.
- Global growth having held up above trend for the last few years is now bringing serious capacity constraints to the global economy.
- Unwinding of the above constraints is rarely gradual or smooth, which suggests that a rapid deterioration is likely to lead to an intensification of the global slowdown well beyond baseline scenarios.
- We are now witnessing negative second round effects through trade flows.

U.K. inflation climbed 3.8 percent from a year earlier, more than economists forecast in June to the fastest pace in at least 11 years.
The high inflation number exceeds the government's 3 percent upper limit for a second month, putting pressure on the Bank of England to avoid cutting interest rates as the threat of a recession looms.

Short-run policy implication: unchanged fed funds rate for some time
Bernanke’s semi-annual Monetary Policy Report to Congress on Tuesday is that the FOMC views the current 2.0% Fed funds rate as appropriately calibrated to restoring acceptable growth and acceptable inflation over the medium-term given the information available today ?

Eric Tan, London