US data disappointed yesterday

US industrial production declined 0.5% m/m in June, well below expectations for 0.0% growth. A downward revision to May’s industrial production growth, from -0.2% m/m to -0.5% further underscores the recent weakness in production. There were notable declines in utilities and non-durable goods manufacturing in June, while capacity utilization at US factories also fell for a second consecutive month, to reach a value of 78.9%.

June US retail sales data painted a somewhat mixed picture. Headline nominal retail sales rose 0.2% m/m, below consensus expectations, and down from an upwardly revised 0.5% m/m growth rate in May. Control group sales (excludes gas, vehicles, food services and building materials), which are an input used to estimate GDP, rose by a stronger 0.6% m/m, up from 0.3% in May. However on a quarterly annualized basis control group sales rose just 2.1% in Q2, down from 5.1% in Q1, potentially signaling the start of a deceleration in spending by US consumers.   

Data from research company, Kantar suggests that UK grocery inflation eased for a fourth consecutive month. The Kantar measure shows a 14.9% rise in grocery inflation in the 4 weeks up to 9 July, lower than the 16.5% rise the 4 weeks prior. Official UK CPI figures are due to be released today, and are expected to show a moderation in the headline figure from 8.7% y/y in May to 8.2% y/y in June.     

The World Bank has announced a new initiative to increase lending to developing nations, while still maintaining the Bank’s “AAA” credit rating. The plan consists of three new mechanisms, including a “portfolio guarantee program” which would allow shareholder countries to step in and repay loans in the event of a default. World Bank president, Ajay Banga, announced the initiative on the final day of the G20 meeting held in India, and described the proposal as one that allows the Bank to “stretch every dollar”.

Today’s Economic Data and Events

• 10:00 UK CPI, June. Forecast: 8.2% y/y

Fixed Income

• US treasury moves were mixed at the end of trading on Tuesday. Yields on the 2yr UST rose 2bps to 4.742%, reversing Monday’s decline,  while 10yr yields declined by 2bps to 3.785%.
• There were also declines in UK Gilt yields on Tuesday, with the 2yr yield falling 8bps to 5.048% and the 10yr yield dropping  almost 10bps to reach 4.328%.
• German bund yields dropped on the day, with ECB governing council member, Klaas Knot, sending a more dovish message on the possibility of rate hikes beyond the summer. The 2yr Bund yield fell 16bps to 3.022%, while the 10yr yield dropped 10bps to 2.375%.

FX

• Sterling was slightly weaker against the US dollar again on Tuesday falling  0.28%, to reach 1.3036. There was also a marginal fall in EURUSD, down 0.06%, at the end of trading  to reach 1.1229.
• Moves in commodity currencies were, similar to Monday’s trading, mixed against the dollar. USDCAD fell 0.23% to 1.3169, AUDUSD fell 0.07% to reach 0.6811, and NZDUSD declining 0.8% to 0.6273.

Equities

• A positive start to earnings season bolstered stock markets yesterday, as in the US the S&P 500, the NASDAQ, and the Dow Jones added 0.7%, 0.8%, and 1.1% respectively.
• There were gains earlier in the day in Europe also as the composite STOXX 600 ended the day 0.6% higher. In the UK, the FTSE 100 also closed up 0.6%.
• Locally, the DFM added 0.1% and the ADX 0.2%. In Saudi Arabia the Tadawul closed down 0.1%.

Commodities

• Oil prices picked up again yesterday after Monday’s loss, with both benchmarks enjoying strong gains. Brent futures ended the day 1.4% higher at USD 79.6/b, while WTI gained 2.2% to USD 75/6/b.
• Prices were supported by a drop in Russian exports and by data out of the US as the API reported that US crude inventories fell by 797,000 bbl last week.