Upbeat Chinese and U.S. Data Overshadow the Terrorist Attack in Nice

July 15, 2016

Chinese GDP, retail sales, and industrial production exceeded analyst expectations and suggest that economy’s slowdown is leveling off.

  • Real GDP growth accelerated to a quarter-on-quarter increase of 1.8% in the second quarter, keeping on-year growth steady at 6.7% instead of slowing further as analysts were expecting.
  • Industrial production posted a 6.2% on-year advance in June and a rise of 6.0% in the first half of 2016.
  • A 10.6% year-over-year rise in retail sales last month was faster than May’s 10.0% and the best result since December.
  • But fixed asset investment spending growth slowed to 9.0% in the first half of this year compared to a 10.0% advance in 2015 as a whole.

Reported U.S. economic statistics today also were upbeat.

  • Industrial production grew 0.6% in June, twice as much as forecast and more than reversing May’s 0.3% drop.
  • Capacity utilization rebounded to 75.4% in June from readings of 74.9% in May and 75.2% in April.
  • Retail sales, which had been forecast to edge only 0.1% higher, instead climbed 0.6% in June and 1.4% in 2Q. On-year growth in retail sales equaled 2.7% last month and 2.6% in the spring quarter.
  • Average weekly earnings accelerated marginally to a 12-month increase of 1.2% in June.
  • Major U.S. bank earnings reports for the second quarter beat estimate.
  • The Empire State manufacturing index, compiled by the N.Y. Fed, fell back 5-1/2 points to 0.55 but was the third best reading of 2016.
  • The one fly in today’s ointment was a 4-point setback in the U. Michigan/Reuters consumer sentiment index to a 3-month low of 89.5 in early July, when bond yields were reeling in the wake of the Brexit vote.  Most likely the full-July result will embody an upward revision.

U.S. stocks opened modestly higher, extending a very strong week.  Earlier Japan’s Nikkei climbed 0.7%.  Share prices also rose 0.9% in Taiwan, 0.6% in Singapore, 0.5% in Indonesia, 0.4% in South Korea and Hong Kong, and 0.3% in Australia.

However, the rally in European stocks earlier this week hit a bump after another terrorist attack in France, this time in Nice.  Such prompted an extension of that country’s government state of emergency and prompted Republican presidential candidate Trump to postpone his planned announcement today of his choice for VP running mate. Reportedly it will be Indiana Governor Mike Pence.  The Paris Cac is down 0.6%, and stocks elsewhere in Europe have lost 1.9% in Greece, 0.4% in Italy and Switzerland, and by 0.3% in Germany, Spain and Britain.

Bond prices continue to fall, lifting yields.  The 10-year Treasury yield of 1.57% compares to a 1.32% low earlier this month and is another four basis points higher than yesterday.  Sovereign debt yields on 10-year maturities also have risen by 4 bps in the U.K. and 3 bps apiece in Japan and Germany.

The dollar firmed overnight by 0.6% against the yen, 0.9% relative to the kiwi, 0.3% versus the Aussie dollar, 0.2% against the Swiss franc and euro, and 0.1% versus sterling.  The loonie and yuan are steady.

Industrial metal prices have extended this week’s strong advance.  West Texas Intermediate crude also also went up, rebounding 1.1% to $46.17 per barrel.  Gold at $1,330.30 per ounce is little changed.

Euroland consumer price and trade statistics were reported.

  • Harmonized consumer prices rose 0.2% on month in June mainly because of a 1.7% leap in the energy component.  Non-energy industrial goods prices fell 0.5% below their May level.  On-year inflation comparisons were at 0.1% for the total CPI compared to 0.2% in June 2015 and 0.9% for core CPI versus 0.8% in the year to June 2015.
  • The eurozone’s seasonally adjusted trade surplus narrowed EUR 0.9 billion to EUR 24.5 billion in May.  Exports and imports fell by 1.8% and 1.5% from April levels.  The January-May unadjusted surplus of EUR 105.3 billion was 22.6% greater than a year earlier, as imports (down 3.1%) fell more sharply than exports (down just 0.4%).

Britain had some disappointing data.  The index of leading economic indicators fell 0.2% in May even before the Brexit vote was known.  The index of coincident economic indicators edged up only 0.1% after a 0.4% increase the month before.  Construction output in the U.K. fell 2.1% both on month and on year in May.

Canada’s monthly survey of manufacturers also was weak.  Nominal sales in May fell 1.0%, and real manufacturing sales were down by 2.1% on month.  Growth in orders of 0.3% was half as much as reported for April, and the ratio of inventories to sales edged upward.

Austria, Denmark and Portugal reported weak price data.  Turkey’s jobless rate stayed at 9.7% in April.

Next week will be dominated by the U.S. Republican national convention in Cleveland and an ECB monetary policy meeting and press conference on Thursday.  It’s not an especially meaty week from a data release standpoint.

Copyright 2016, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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