Read on for our overview of the macroeconomic and market events from the last week of July. The focus was on the US where GDP figures and the Federal Reserve meeting provided the backdrop for rising equity markets. But how did the other markets fare and what can we expect later this week?
The latest from the US
Last week the immediate focus shifted to the US as the opportunity for a potential increase in rates draws closer – with China, Greece and Europe also providing plenty to discuss. Looking forward there are two non-farm payroll releases ahead of the Federal Open Market Committee’s (FOMC) next opportunity to increase rates in September, so employment data is likely to be watched keenly – starting with some releases this week.
US GDP grew by 2.3% seasonally adjusted in the second quarter of 2015, falling below the 2.5% expected. First quarter GDP was revised up to 0.6% from -0.2% as we expected, and there were also revisions to previous years – 2012 and 2013 saw revisions down and 2014 saw a slight increase in real GDP.
Also in the US, second quarter figures for core Personal Consumption Expenditure (PCE) came in at 1.8% seasonally adjusted, again above the consensus. First quarter figures were also revised up to 1.0% from 0.8%. Signals from US labour markets were mixed, with initial jobless claims in at 267,000 while the US Employment Cost Index (ECI) rose at its slowest pace since 1982 in the second quarter. The focus is now on what will constitute ‘some’ improvement in the labour market (as referred to in the FOMC statement).
Emergency congress expected in Greece
In Greece last week, Syriza voted for an emergency congress after the next bailout negotiations in September, which might lift immediate political pressure on Tsipras. Also in the press was the suggestion that the IMF will not provide a further bailout unless there is an agreement on debt relief. Greece’s next deadline for a third bailout is mid-August and if that is not met then a bridging loan may be needed. Greece is also due to make a €3.2bn payment to the ECB on 20 August.
Mixed data from elsewhere
Data from elsewhere were mixed. Japanese CPI came in at 0.4% year on year, which is the lowest monthly reading since June 2013. Meanwhile, the Japanese jobless rate came in at 3.4%. Germany’s annualised CPI was lower at 0.2%, but on the other hand European confidence indicators were quite positive.
Earnings season in the US continued, and with 71% of firms having reported the picture was broadly unchanged on the previous week – both in terms of sales growth and the ratio of companies beating earnings expectations.
- Equities – Market movements appear to be reflecting the mixed performance of the global economy at the moment, where defensives are outperforming cyclical stocks. The S&P 500 finished up 1.2% last week, the FTSE 100 rose 1.8%, the Eurofirst 300 rose 0.5% and Nikkei 225 was up 0.2%. Meanwhile the Shanghai Composite fell 14% over the past month, and fell 8.5% on Monday last week. Emerging markets have been hit hard and EPFR reported further outflows of US$4.5 billion from global emerging market funds last week.
- Bonds – G7 bond yields were lower compared to last week, notably in the US and UK where 10-year yields fell to 2.2% and 1.92% respectively.
- Commodities – It was another difficult week for commodities with both oil and copper falling. Notably Brent crude was down 17% for the month.
- Currencies – The sterling strengthened against the dollar, yen and euro – including a 1.4% rise against the euro. The US dollar index fell following the latest Employment Cost Index release.
The week ahead
There are a number of releases to look out for in the week ahead including PMIs, US employment figures and the latest releases from the Bank of England. This week should provide a useful update on the global economic picture.
We start the week with the latest decision from the Monetary Policy Committee on rates, where no change is expected. The inflation report and minutes are going to be released at the same time. Markit UK PMI Manufacturing figures are also due alongside industrial production and manufacturing production.
The United States
Over in the US there are a number of releases including US Domestic vehicle sales, the PCE Deflator and personal income and spending. We also expect Markit releases for US Composite PMI, Services PMI and Manufacturing PMI, and we look to these for a barometer of the health of the domestic economy (alongside the ISM Manufacturing for July and Factory orders). Towards the end of the week the focus shifts to US initial jobless claims on Thursday, which are expected in at 250,000. On Friday we get a raft of employment data, including changes to payrolls which are expected by consensus at 225,000 for non-farm payrolls. Look out for average hourly earnings too.
In Europe this week we have PMIs amongst a range of other data. On Tuesday Eurozone PPI is expected to fall. As in the US we also have Markit PMI Services and PMI Composite for France, Italy, Germany and the Eurozone, and the consensus is for them to remain expansionary. Eurozone Manufacturing PMI is expected to remain steady at 52.1. German factory orders are expected to show 5.1% growth year on year, and on Friday we have industrial production and manufacturing figures from across Europe. Retail sales figures are also released for the Eurozone during the week.
On Wednesday Japan and China have PMI Services and PMI Composite readings due. From China we also have exports and imports, as well as CPI and PPI figures where PPI is expected to contract. The Caixin manufacturing index has already been released this week, coming in below consensus at 47.8 and showing a further sign of China’s slowdown.