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The Week in Global Markets
Financial markets summary:
– EUROPE: Stock markets continued their recovery this week, supported by some positive macro data. The euro area economy grew slightly in Q2, driven by growth in France, Italy and Spain. Benchmark pan-European indices, as well as indices all major countries, rose strongly. However, industrial production still declined and surveys of business activity showed that it is slowing. The UK economy keeps growing at a higher pace than the Eurozone and the FTSE 100 also rose this week. The euro and the pound both appreciated against the US dollar.
– UNITED STATES: US stock indices also had some solid gains this week, as positive macro news appears to have reinvigorated the mood in the markets. Inflation readings were better than expected, retail sales rose more than forecast and a soft landing seems to be within reach at this point. However, housing activity seems to be returning to levels not seen since the start of the pandemic. Housing starts are falling, accompanied by a decline in builder sentiment. The Nasdaq index has now moved up over 12% vs. the intraday trough after the drop on August 5th and growth stocks are performing better than value stocks. Within the S&P 500, all sectors were in green this week, with the largest increases recorded in tech, consumer discretionary and financials.
– ASIA-PACIFIC: Japanese indices are also strongly on the rise, with the Nikkei up 8.67% and the TOPIX index up 7.9% on the week. The yen has weakened during this week vs. the dollar, reaching the 148-149 levels again, which should support export-oriented Japanese businesses. The growth in Japan’s GDP was also higher than expected (+0.8% QoQ / +3.1% annualized) and the yield on the 10y JGB rose to 0.88%, from 0.86% at the end of last week. The stock market also recovered in China, despite macro data pointing to further weaknesses in the economy (e.g., smaller-than-expected rise in industrial production and fixed asset investment). The Shanghai Composite Index gained 0.6% while the CSI 300 advanced 0.42%. Lending growth has slowed down in July.
– BITCOIN: Bitcoin’s price fell somewhat this week, going back to the $58k-$59k levels. Some analysts are claiming that price chart is mirroring patterns seen in previous United States election years, and its recent lack of momentum could be significantly reversed, as published by CoinTelegraph. Going back to August 2012, a massive crash occurred, and then the election took place with slow moves before moving up drastically after the election. Others believe Bitcoin may revisit the $40k range.
policy rate overview
The Central Bank of Norway kept its policy rate unchanged at 4.5%, in line with expectations. It also stated that a tight stance will likely be needed for some time to fight inflation – and that the rate will probably be “kept at the current level for some time ahead”. The committee will have received more information about economic developments ahead of its next monetary policy meeting in September when new forecasts will be presented.
highlights from Germany
Economic sentiment reverses course
According to the ZEW indicator, the economic sentiment in Germany is crashing: the August values dropped to 19.2pt, much lower than expected, while the current situation assessment turns more negative, falling to -77.3pt. This is the strongest decline of the economic expectations over the past 2 years, reflecting the breakdown of the economic outlook. The expectations for export-intensive German sectors have especially declined sharply. As the report states, “it is likely that economic expectations are still affected by high uncertainty, which is driven by ambiguous monetary policy, disappointing business data from the US economy and growing concerns over an escalation of the conflict in the Middle East. Most recently, this uncertainty expressed itself in turmoil on international stock markets.”
Expectations survey paints a mixed picture
According to the July Bundesbank Consumer Expectations Survey, average inflation expectations fall to 3% in July (vs. 3.2% in June) for the year ahead and to 3.5% and 3.4% for the next 3 and 5 years, respectively. Income growth is expected on average to grow by less than in previous months (€90 in July vs. €150 in June) – the change affected all age and income groups.
highlights from Europe
Euro area industrial production declines
Industrial output was down by 0.1% MoM and 3.9% YoY in the EA and remained unchanged in the EU MoM while falling 3.2% YoY. On a monthly basis, the decrease was only in one category – non-durable consumer goods – where production declined by 2.5% MoM in the EA and 2% MoM in the EU. For all other categories (intermediate goods, capital goods, durable consumer goods, energy) production increased. Among Member States for which data are available, the largest monthly decreases were recorded in Ireland (where there is still a review of the seasonal adjustment methodology), Belgium, Croatia and Portugal. The highest increases were in Romania, Finland and Slovakia. For the annual development, the categories responsible for the drop were energy and non-durable consumer goods. The largest annual drop was recorded in Ireland, followed by Croatia and Latvia, while the biggest increases were in Greece, Cyprus and Malta.
Bankruptcies keep rising
In Q2-24, the number of bankruptcy declarations of EU businesses rose by 3.1% vs. Q1-24, while business registrations were down by 2.1% over the same period. There was divergence across sectors: there were increases in 4 sectors – information and communication (-4.8%), transport (-1.6%), accommodation and food services (-1.1%) and education and social activities (-1.0%); on the other hand, bankruptcy declarations increased in 4 other sectors: construction (+3.8%), financial activities (+2.6%), trade (+2.4%) and industry (+1.6%). The number of business registrations went down in all sectors of the economy – the highest decreases in Q2-24 (vs. Q1) were in trade (-4.7%), industry (-3.6%) and education and social activities (-3.4%). The smallest decrease was registered in financial activities (-0.7%).
highlights from The United States
Inflation continues to decelerate
German industrial production rose – the July CPI rate was 2.9% YoY / 0.2% MoM, which was lower than expected. The core CPI inflation rate was in line with expectations at 3.2% YoY / 0.2% MoM. Real average hourly earnings increased 0.7%. Housing, shelter & owners equivalent rent all up 0.4%. Shelter inflation is still stubborn but is slowly progressing in the right direction. Markets are already pricing in the rate cut that is expected in September because of the belief that inflation will continue to slow. For the third month in a row, the monthly core CPI ex-shelter is negative.
Producer price growth also slows down
July producer prices rose +0.1% MoM vs. expected +0.2% MoM; respectively 2.2% YoY vs. 2.3% expected. US core PPI was negative in July primarily due to services also being negative. This was the biggest monthly decline since last March and the first time since December that it turned negative. The 3-month annualized pace of wholesale inflation is 2%.
Retail sales rose in nominal terms but were down after the inflation adjustment
The increase was +2.6% YoY before adjusting for higher prices and -0.4% after. The MoM increase was +1%, which was also higher than the forecast 0.3%. Retail trade sales were up 1.1% MoM and up 2.6% YoY. Nonstore retailers were up 6.7% YoY, while food services and drinking places were up 3.4% YoY. However, some of the previous months were actually revised downward.
highlights from The United Kingdom
Inflation is up again
The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 3.1% YoY in July, up from 2.8% in June. The Consumer Prices Index (CPI) rose by 2.2% YoY, while it fell by 0.2% MoM. The largest upward contribution to the monthly change in both CPIH and CPI annual rates came from housing and household services where prices of gas and electricity fell by less than they did last year; the largest downward contribution came from restaurants and hotels, where prices of hotels fell this year having risen last year. Core CPI rose by 3.3% YoY, down from 3.5% in June.
GDP keeps increasing
The first estimate for Q2-24 shows that UK GDP likely grew by 0.6% QoQ, following a 0.7% growth in Q1. On an annual basis, it grew by 0.9% vs. Q2-23. This growth was mainly driven by services (+0.8% QoQ) which was widespread across the sector and offsetting falls of 0.1% in both the production and construction sectors. In expenditure terms, there were increases in gross capital formation, government consumption and household spending, partially offset by falls in net trade. Real GDP per head is estimated to have increased by 0.3% QoQ, but it is 0.1% lower vs. Q2-23. Within production, manufacturing was the largest negative contributor with 9 out of 13 manufacturing subsectors showing falls in the latest quarter. Most notable were the drops in the manufacture of transport equipment, the manufacture of textiles, wearing apparel and leather products, continuing the downward trend in this industry over the last seven quarters. Construction output is shown to have fallen by 0.1% in Q2-24, the third consecutive quarterly fall.
Retail trade recovered slightly
UK retail sales volumes rose in July, while the June fall was smaller than previously reported, with department stores and sports equipment stores leading the positive move. Volumes rose 0.5% MoM and 1.4% YoY in July, after a 0.9% MoM fall in June. Volumes rose by 1.1% on 3m/3m basis (May-Jul). However, compared to the pre-pandemic levels, retail trade volumes are still down 0.8% vs. Feb-20. Non-food stores sales volumes (department + clothing + household + other non-food stores) rose by 1.4% MoM, with summer discounting and sporting events (such as Euro 2024) driving sales. Non-store retail sales volumes rose by 0.7%, mainly due to a rebound from retailers other than mail order. Automotive fuel sales volumes fell by 1.9%. Online spending rose by 2.5% MoM and 3.6% YoY.
Author: Nikolay
Founder of MoneyCraft
