For a more comprehensive round up of the week, listen to Stephen’s full report here.

Our monthly roundup of global and local economic data and events indicates that the global economic growth is starting to accelerate again after a softer patch in Q1 2014. The weakness in global growth in the early months of 2014, however, came at a time when labour resources in most economies were still substantially underutilized causing financial markets to reassess how quickly major central banks might start to reverse the very accommodating monetary conditions prevalent in most major economies since the global financial crisis. Market expectations of when official interest rates set by central banks might start to increase have been pushed out many months in some cases, although there are also a small group of economies where monetary policy tightening has already started such as New Zealand in our part of the world.

For the most-part, a more benign official interest rate outlook has translated to further rallies in government bond markets. The combination of signs of improving global economic growth, reduced near-to-medium threat of tighter monetary conditions and lower government bond yields is helping to sustain investors’ demand for risk assets including credit.

Economic data released in the US through late April and May was very mixed. The advance reading of Q1 2014 GDP was much weaker than expected showing annualized growth of 0.1%, down from 2.6% in Q4 2013. The weakness was attributed to the impact of the unusually severe winter weather in the US and mostly better economic readings for the months of March and April provided some evidence that the US economy was rebounding strongly late in Q1 and early in Q2. Previously weak indicators of housing activity took a turn for the better. March pending home sales lifted by 3.4% in the month. April existing home sales were up by 1.3% and encouragingly new home sales improved by 6.4% and new housing starts by 13.2%.

Indicators of US manufacturing activity also strengthened in March and April, particularly leading indicators such as durable goods orders, up 2.6% in March, and the April ISM manufacturing survey lifting to 54.9 in April from 53.7 in March. The US labour market has also improved with non-farm payrolls up by 288,000 in April after an upwardly revised 203,000 in March. The unemployment rate fell to 6.3% in April from 6.7% in March. Importantly, the US Federal Reserve indicated that the labour market would need to improve a lot more yet before full-employment could be judged to exist in their view. Various senior Fed officials, including Fed Chairman Yellen indicated that the orderly unwind of its asset purchase program, or QE, would continue, but any move to start normalizing monetary policy by lifting the zero Fed funds rate was still a long way in the future and would be a very gradual process once it has started.

In China, the regular run of monthly economic readings for April was a touch softer than expected, and concerns continued to swirl around the cooling residential property market. Yet the main April economic readings were still consistent with economic growth close to the Government’s target of 7.5% y-o-y. April industrial production was up 8.7% y-o-y with signs of strength in the areas targeted for stronger growth by the authorities. Retail sales rose by 11.9% y-o-y overall, but was improving in rural areas and above 13% y-o-y. Urban fixed asset investment was up by 17.3% y-o-y. Interestingly, leading indicators of economic activity are hinting at better growth ahead. The privately collected HSBC-Markit May manufacturing PMI survey lifted by more than the market expected to 49.7 from 48.3 in April, a 5-month high reading, and the survey question relating to output was even stronger lifting to 50.3.

In Europe, GDP growth in Q1 was disappointing for the euro-area, up only 0.2% q-o-q and with a wide dispersion among the bigger economies ranging from encouragingly firm readings of 0.8% for Germany and 0.4% for Spain and disturbingly soft readings, flat for France and down by 0.1% for Italy. Outside the euro-area the strong economic recovery in the UK continued with GDP up 0.8% q-o-q and by 3.1% y-o-y. Soft growth in the euro-area and very low inflation, bordering on risk of deflation is fostering a view in markets that the European Central Bank will soon ease monetary policy further, either cutting its official 0.25% interest rate to zero and/or announcing some form of US-style quantitative easing.

In Australia, the mostly much stronger economic readings of January and February faded in March. The tough 2014-15 Federal Budget announced earlier this month was seen as presenting a modest, but persistent headwind for economic growth over the next few years. One key Australian export commodity price for iron ore also weakened much further in April and May amid concern of softer demand from steel mills in China.

Returning to the key data releases over the past month, March home building approvals fell by 3.5% (although are up 20.0% y-o-y). March retail sales lifted by a weaker-than-expected 0.1%, but were up by 1.2% in Q1 after allowing for inflation. Australia’s international trade surplus contracted more-than-expected to $A0.7 billion in March from $A1.1 billion in February. Going against the trend of disappointments, April employment growth was stronger than expected, up by 14,200 continuing the run of better labour force readings since the beginning of the year. The unemployment rate was steady at 5.8% in April confounding widespread forecasts that it would rise.

Many, including Treasury and the RBA, doubt whether the unemployment rate has genuinely peaked for this cycle given the challenges to the growth outlook from declining mining investment spending and government budget repair. The household sector, which needs to be the mainstay of economic growth, also appears to be in two-minds according to the May Westpac-Melbourne Institute consumer sentiment survey, deeply pessimistic about their own finances currently and 12 months ahead, but much more optimistic about overall economic conditions over the next five years.

In May, the RBA appears to have become more convinced that annual inflation near the top of its 2-3% target band will settle back inside band over the next two years mostly because economic growth looks set to run shy of long-term trend for a protracted period. Elevated house prices have started to elicit warnings from the RBA related to financial stability issues, but with no sense of any urgency to act on the warnings. Recent signs that demand for housing is starting to flatten, especially in the most over-heated market, Sydney, have probably reduced further any need for policy action by the RBA to tame the housing boom. Instead, the RBA over the past month has started to look more entrenched in its expressed view that the best course for the economy is an extended period of interest rate stability. We concede that the RBA is unlikely to alter the cash rate this side of 2015 and that the conditions that favoured the next rate move being a hike when it eventually comes have weakened over the past month.