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● Many observers have noted that the financial crisis led to a highly synchronized decline in GDP growth across the global economy.
● However, the correlation among labor markets outcomes has been considerably smaller.
● For example, German unemployment has increased by less than half a percentage point since last summer even though output has contracted more than in the US.
● The extent to which a country has experienced a housing bust has been a key factor driving unemployment trends.
● Differing policy responses have also played an important role.
● The lack of synchronicity in labor market outcomes has had important implications for productivity growth…
● ...and may have a bearing on interest rate policy going forward.

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The S&P opened higher yesterday on the back of strength in Asian markets but pulled back over the course of the day to finish slightly lower as financial stocks were unable to hold their morning gains. US 10s rallied 9 bps to 3.47%, smack dab in the middle of the summer trading range. Overnight, China’s equity markets dropped sharply at one stage losing almost 6% but recovered half of the intraday losses into the close. The decline in Asian stocks led to a weak open in European bourses but index levels remain well above Friday’s close.

Yesterday the Bank of Israel became the first central bank to hike rates. The BoI raised rates by 25bps to 0.75%. This came only a short while after Governor Stanley Fischer moved the BoI away from its quantitative easing program. To be sure, with inflation running at 4% -- double the 2% target -- there was scope to begin to normalize rates at an early stage. Nevertheless, some think the BoI’s actions are worth noting, not least because of the high esteem with which Governor Fischer is regarded in the economic community. As such, analysts think this move foreshadows what is likely to be the beginning of a tightening cycle among EM central banks over the next 12 months.