Weekly wrap: Chinese growth slows while US retail sales disappoint – 23.07.2013
Source: Henderson Global Investors
Global equities posted gains, however the advance was held back by mixed corporate earnings reports; while several major US banks delighted, Google and Microsoft disappointed. As fears for an imminent monetary stimulus withdrawal by the US Federal Reserve have eased, the gold price strengthened. US, UK, German and Japanese 10-year government bond yields fell (prices rose) over the week. Meanwhile, the US dollar depreciated against most major currencies, including the yen and the euro.
US June data releases included weaker retail sales growth of 0.4%, which was half the level expected by the market, while inflation rose to 1.8%, driven by a jump in gas prices. In Europe, new car sales fell to their lowest level for 17 years, dipping 5.6% year-on-year due to sluggish growth and high unemployment. The UK continued to buck the trend, and was the only large market to record a rise in new registrations. UK inflation rose to 2.9% in June, which was the highest level in a year but not as high as some economists expected. The rise from 2.7% to 2.9% was driven by increasing clothing, footwear and transport prices. According to the Office for National Statistics unemployment in the UK fell by 57,000 to 2.51million in the three months to May. The number of long-term jobless rose to a 17-year high while the overall unemployment rate was 7.8%. UK retail sales gained 0.2% from May to June, up 2.2% from a year earlier, due to department store sales and promotions. Despite falling heavily in June (to £8.5bn), UK government borrowing was still higher than expected.
In China, growth slowed to 7.5% in the second quarter due to falling exports and faltering investment. The economy remains on track for its weakest year since the late 1990s as the country’s new leaders focus their attention on reform rather than short-term stimulus. Over the weekend, Japanese Prime Minister Shinzo Abe’s coalition government won a majority in the upper house election. This means Mr. Abe now has control of both upper and lower houses, easing the pathway for economic reforms.
US data releases are light this week with attention being focused on existing and new home sales data, and the durable goods report. On Monday, existing home sales are likely to increase in June due to greater inventory levels. New home sales on Wednesday are also expected to show a gain from May as homebuilder sentiment improved in June, and as mortgage purchase applications increased. Initial jobless claims on Thursday are likely to see a small gain from the previous week, while durable goods orders are expected to build on May’s strong rise of 3.7% month-on-month. Friday’s University of Michigan Consumer Sentiment Index is unlikely to change. Despite a rise in equities and home prices, any gains may have been offset by higher mortgage rates and gasoline prices.
In Europe, the focus will be on eurozone purchasing managers’ indices (PMI) data on Wednesday and the German IFO business climate survey on Thursday. Eurozone PMI data covering both services and manufacturing is expected to rise slightly from the previous month while the German IFO survey may show a marginal pick-up. On Friday, UK Q2 gross domestic product growth is expected to increase to 0.5% quarter-on-quarter compared to just 0.3% achieved in the first quarter.
Japan’s trade data is released on Wednesday; exports are expected to have grown 12% while imports may have increased by 16%. At the end of the week, Japan reveals its latest inflation data. Elsewhere, China’s July HSBC flash PMI manufacturing reading is out on Wednesday.