15 July 2024
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Chinese GDP growth slows in Q2

Daily Outlook 15 July 2024

By Jeanne Walters

A raft of Chinese data released this morning points to weaker than expected economic activity. Chinese GDP growth came in at 4.7% y/y in Q2, down from both the 5.3% y/y growth seen in Q1 and the 5.1% than had been expected by markets. Industrial production grew 5.3% y/y in June, which while higher than expectations, was weaker than the 5.6% growth achieved in May. Retail sales saw their slowest pace of growth since 2022, pointing to Chinese consumers continued reticence to spend, growing just 2% y/y in June, after rising 3.7% y/y in May. The housing market remained weak, with property investment falling 10.1% y/y year-to-date. These data releases coincide with the start of the 3rd plenum meeting today, where Chinese political leaders will set the country’s long-term economic and political agenda.

US producer prices rose 0.2% m/m in June, higher than the upwardly revised 0% seen in May. The outturn was driven by a 0.6% m/m rise in services inflation, which was in turn largely due to higher margins at wholesalers and retailers. Goods inflation in contrast fell 0.5% m/m. On an annual basis PPI rose to 2.6% in June, from 2.4% y/y the month prior. Despite the rise in the headline metric, changes in several of the series used in the calculation of the PCE deflator were lower than that seen in May. A Bloomberg report suggests that those moves, taken together with last week’s CPI release, could see core PCE fall to 2.5% y/y in June from 2.6% in May.

Provisional results from the University of Michigan Sentiment survey declined to a value of 66.0 in July, from 68.2 in June. There were declines in both the current conditions and expectations components. Within individuals identifying as Democrats, the headline measure fell even further, declining by 8bps, possibly related to Biden’s poor debate performance a few weeks ago. Households’ annual inflation expectations (both one-year and 5-to-10 years ahead) declined to 2.9% from 3% in the June survey.

Consumer prices inflation in India rose for the first time in six months, increasing to 5.1% y/y in June from 4.8% in May, dampening chances of a rate cut by the RBI next month. Still-high food inflation fueled the rise in the headline measure, increasing to 8.4% y/y from 7.9% in May.

Today’s Economic Data and Events

  • 13:00 EC Industrial production (May): forecast -0.8% m/m

Fixed Income

  • US Treasuries ended the day higher on Friday, despite a marginally stronger than expected headline PPI print. Markets appear to have been encouraged by weaker price gains in the PPI components that flow into the Fed’s preferred core PCE measure. Yields on the 2yr UST fell 6bps to 4.4514%, while the 10yr yield fell 3bps to 4.1829%. On a weekly basis, yields on both 2yr and 10yr treasuries were lower, down 15bps and 10bps, respectively.
  • Bond yields were higher across much of Europe by the end of the day on Friday. Both the 10yr UK Gilt and German Bund yield rose 3bps to 4.1079% and 2.494%, respectively.

FX

  • The US dollar fell further against most peer currencies on Friday, with expectations of a Fed rate cut gaining momentum. EURUSD gained 0.36% to close the day at 1.0907, while GBPUSD rose by 0.57% to 1.2988. The Yen also gained against the dollar, with USDJPY falling 0.64% to close at 157.83.
  • Commodity currencies were also generally stronger against the dollar on Friday. AUSUSD and NZDUSD both gained just under 0.4% to 0.6784 and 0.6119, respectively. USDCAD was broadly flat against the dollar, closing at 1.3635.

Equities

  • US equity markets rose on Friday, with growing expectations of a Fed cut. Both the Dow Jones and the NASDAQ gained 0.6%, while the S&P 500 rose 0.55% on the day. On a weekly basis, these moves left all three indices higher.
  • There were also widespread gains on European equity markets. The Euro Stoxx 50 and CAC 40 indices both rose 1.3%, the DAX increased by 1.15% and the FTSE 100 gained 0.4%.

Commodities

  • Oil prices closed lower on Friday, with Brent futures down 0.4% at USD 85.03/b and WTI declining 0.5% to USD 82.21/b. Both benchmarks were lower on a week-on-week basis.

Written By

Jeanne Walters Senior Economist


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