China IP and retail sales data misses forecasts in July

• Industrial production in China came in lower than forecast in July at 3.8% y/y, slightly lower than the 3.9% recorded in June. Year-to-date, industrial production was up 3.5% y/y. Retail sales also missed forecasts, up just 2.7% y/y in July against a consensus estimate of 4.9% y/y, and down from 3.1% in June. Year-to-date retail sales contracted slightly at -0.2% y/y. New Covid-19 outbreaks across the country weighed on both industrial output and consumer spending last month, and more outbreaks in different areas have been reported in August. The PBOC recently indicated it would not implement a big stimulus or excessive money printing in order to boost growth, as it is vigilant on inflation. However the central bank did cut the rate on its one-year policy loans by 10bp to 2.75% this morning.
• Japan’s economy grew 2.2% q/q annualized in the second quarter, slightly slower than analysts had expected but an improvement on Q1 GDP which was also revised higher to 0.1% from -0.5% previously. While business spending came in ahead of forecasts in Q2, private consumption was weaker than expected at 1.1%.
• The UK’s GDP shrank by slightly less than expected in the second quarter as it contracted by -0.1% q/q, compared to consensus projections of -0.2%. An extra public holiday for the jubilee celebrations was widely held to have tipped the balance into negative, and the GDP for June was -0.6% m/m. The ongoing rollback of Covid-19 related testing and vaccination activities in healthcare also weighed on output. Private consumption held up well but will likely come under more concerted pressure over the second two quarters of the year as the cost-of-living crisis bites - CPI data is due Wednesday and is expected to come in just shy of double digits at 9.8%.
• The US University of Michigan consumer sentiment index beat expectations in August as it picked up to 55.1, compared to the predicted 52.5. This was also stronger than the previous month’s 51.5 and June’s record low of 50.0, but remains very low compared to the average. The survey’s statement noted that the expectations index was particularly improved for ‘low- and middle-income consumers for whom inflation is particularly salient’, and likely reflects lower gasoline prices at the pump in recent weeks.  One-year inflation expectation declined from 5.2% to 5.0%, the lowest level in six months, but longer term inflation expectations rose slightly to 3.0% from 2.9% in July.
• Bloomberg has reported that Saudi Arabia will renew its USD 3bn deposit with Pakistan as it looks to aid the country through its current financial difficulties. Further, Saudi Arabia will provide USD 100mn a month in petrol products for the next 10 months.

Today’s Key Economic Data and Events

• 16:30 US Empire manufacturing index forecast (Aug) 5.0

Fixed Income

• Moody’s has cut Turkey’s sovereign credit rating, now giving the country a B3 compared with the previous B2, with the outlook raised to stable. The ratings agency drew attention to pressures on the current account ‘raising external financing needs at a time of tightening financial conditions globally.’
• US 10y yields declined slightly during Friday’s session, closing the week at 2.83%, broadly unchanged w/w. 2y yields rose slightly at the end of last week, ending the session at 3.24%. The 2bp w/w change masked the volatility over the last week, as markets repriced expectations for future Fed hikes. The minutes of the last FOMC is due to be released this Wednesday, and may provide some clues about how officials are thinking about rate decisions at future meetings.

FX

• The dollar has been losing some ground after its extended run of strength against a basket of trade-weighted currencies. The dollar index dropped a further -0.9% w/w last week, to 105.6. It is now down -2.3% m/m but still up 10.4% ytd.
• Most majors gained against the greenback over the week as the euro climbed 0.8% w/w to 1.0259 and GBP 0.5% to 1.2138, although both remain low compared with historic levels. JPY closed at 133.42 on Friday.  

Equities

• Saudi Aramco has announced a net income of USD 48.4bn in Q2, compared with USD 25.5bn a year earlier. This is the highest quarterly figure since first listing in 2019, with profits soaring on the back of the global energy crunch which has seen oil prices spike and oil production from Saudi Arabia rise as well. The dividend was unchanged at USD 18.8bn, and Aramco is using the windfall to reduce debt and invest in boosting production capacity.
• Equity markets enjoyed another week of gains last week, with almost all major global indices closing higher compared to the previous Friday. The notable exception was the Hang Seng, which edged down -0.1% w/w but the rest of Asia saw robust gains as the Shanghai Composite added 1.6% and the Nikkei 2.2%
• In the US, the Dow Jones, the NASDAQ and the S&P 500 gained 2.9%, 3.1% and 3.3% respectively, while in Europe the DAX (1.6% w/w) was the key gainer, lagged by the FTSE 100 which added 0.8% on the week.  

Commodities

• Both benchmarks saw reasonable gains over the week despite dipping on Friday but remain low compared to recent months. Brent futures gained 3.4% w/w to close at USD 98.15/b on Friday, while WTI prices rose by a similar 3.5% to USD 92.09/b.

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