Read on for our overview of the macroeconomic and market updates from the week ending 24 July. We look at the latest releases from across the globe and the performance of the major markets over the past seven days, before giving you a roundup of what we can expect between now and Friday.
The latest data releases from the US
A number of medium-impact data releases from the US suggested US growth remains fairly stable. Existing home sales accelerated more than expected, with 5.5 million homes sold in June – the highest level since 2007. However, weaker new home sales took some of the shine off with only 482,000 new homes sold, slowing from 517,000 previously and an expected 546,000. The Conference Board’s monthly Leading Index slipped slightly in June, but remained up 0.6% from 0.7% in May and ahead of an expected slowdown to 0.2%. Manufacturing PMI was little changed at 53.8 while employment numbers were also improved with jobless claims significantly down.
Mixed PMI figures from across the globe
A number of other PMI readings were released last week. China was notable, with the Caixin Manufacturing PMI (which has replaced the previous HSBC survey) falling deeper into contraction territory at 48.2. The Eurozone also had a weaker reading, with Manufacturing PMI coming in at 52.2 and the Services PMI reading at 53.8 – both still expansionary but weaker than expected. Against this, Japan built on other recent strong data with Manufacturing PMI picking up to 51.4.
The latest earnings figures from the US and Eurozone
Earnings are currently being reported in the US and Eurozone. Of the S&P500 companies now reported, we see a similar pattern to previous reporting seasons with earnings beats yet again significantly exceeding revenue beats – 74% of companies beating earnings compared to just 52% beating revenues. Some of this may be down to careful guidance strategies from investor relations departments, but as we have said before we need sales growth to ultimately pick up for earnings growth to be sustainable. In the Eurozone, we arguably saw more encouraging signs as 63% of earnings beat expectations and 69% of revenues beat expectations.
Last week’s other events
- UK retail sales for June unexpectedly slipped from 4.7% to 4.0% compared to expectations of a slight increase as month-on-month sales shrank.
- Germany’s PPI inflation – effectively factory gate pricing – fell slightly in the month, down -0.1% against expectations of a flat reading.
- The Eurozone consumer confidence measure fell from -5.6 to -7.1 in July as political concerns over Greece made consumers nervous.
We saw something of a risk-off week as market concerns over Chinese slowdown and mixed earnings reports from the US and Europe weighted on equities and commodities, with investors looking for reassurance from sovereign bonds.
- Equities – In the UK the FTSE All-Share was down 2.6%, with the US down 2.2%, Europe ex-UK falling 0.7% and Japan also down 0.4%. Issues in China persisted, as shown by a 1.1% fall in Hong Kong’s Hang Seng index. Emerging markets were also suffering, returning -3.0% for the week.
- Bonds – Developed sovereign bonds tightened over the week with 10-year gilt yields back below 2%, tightening 14 bps to end at 1.96%. Similarly 10-year US treasuries were tighter at 2.26%, as were 10-year German bunds which fell 10 bps to 0.70%.
- Currencies – Sterling was weaker through the week. It finished down 0.56% versus the dollar, and even more against the euro – which had bounced up to finish up 1.97% against sterling and 1.39% against the dollar.
- Commodities – Commodities had a fairly tough week. Both Brent and West Texas oil price fell, with Brent down to US$54.63 and WTI falling to US$48.07. Amid the continuing perceived slowdown in China, copper was also weaker at US$2.38 and gold was also down on the week, finishing at US$1,099 despite a small rally on Friday.
The week ahead
There are a lot of data releases this week, and not just from the continued earnings reports. Updates to look out for include UK and US estimates for Q2 GDP, and the US Federal Reserve’s FOMC meeting on Wednesday – which will be closely watched (although no rate lift-off is expected).
We begin the week with German IFO measures of business conditions and expectations, which are followed by the CBI’s Business Optimism index in the UK. The afternoon sees US Durable Goods Orders, which are expected to have picked up to 3% month on month from a fall the month before.
On Tuesday we get the first estimate of UK GDP in the second quarter, which is expected to have slipped year on year from 2.9% to 2.6% (in line with our house view on secular stagnation). In the afternoon the US reports the S&P/Case-Shiller Home Price index, which is forecast to have accelerated from 4.9% to 5.6%. Later in the afternoon Services PMI and the Conference Board Consumer Confidence measures are both also released.
There will be an overnight release of Japanese retail sales figures going into Wednesday, followed by data for German consumer confidence, UK mortgages and US pending home sales. In the evening we have the much-awaited US Federal Reserve interest rate decision. Consensus is that there won’t be any rate lift-off at this meeting, but it will still be very closely watched.
As we enter the second half of the week we get Industrial Production numbers from Japan then Business and Economic Sentiment measures from the Eurozone. In the afternoon the US reveals its first GDP estimate for Q2, with expectations of a 2.5% reading – a sharp recovery from the first quarter’s annualised rate of -0.2%.
Early on Friday morning the UK releases Consumer Confidence numbers, with Japanese inflation and unemployment following shortly after. Later in the morning the Eurozone also reports inflation and unemployment along with German retail sales. Finally, we round off the week with several US data released including the Chicago PMI print and final Michigan Consumer Sentiment numbers.