Fisher Investments recaps the biggest market, political and economic news from last week, including US retail sales, Q2 2019 eurozone GDP growth and Japanese industrial production.
Global equities fell 1.2% amid concerns over slowing global growth and the yield curve. In the US, July retail sales rose 3.4% y/y, beating expectations. July industrial production increased 0.5% y/y while manufacturing production fell 0.5% y/y—both missing expectations. July core consumer prices (excluding food, energy, alcohol and tobacco) rose 2.2% y/y, slightly higher than initial estimates. July new home construction decreased 4.0% m/m. July’s NFIB Small Business Index report of 104.7 modestly surpassed expectations. On Wednesday, media headlines were dominated by concerns over US and UK yield curve inversions. While the yield curve is an important economic indicator we monitor closely, it is not a perfect timing tool for forecasting recessions or bear markets. The yield curve influences banks’ profits, which drive lending, but it isn’t a perfect proxy—banks’ borrowing costs remain favorable by many measures. For more information, please see our 05/30/2019 commentary, “More on America’s (Small) Yield Curve Inversion”.
In the eurozone, the second estimate of Q2 2019 GDP growth was revised up to 1.1% y/y, in line with expectations. June industrial production decreased 2.6% y/y, missing the consensus. While recent headlines about Germany’s Q2 GDP rate have been dour—citing a contraction in manufacturing and exports—we believe they discount the growing services sector, which accounts for 68.2% of Germany’s economy. For more information, please see our 08/14/2019 commentary, “Putting Germany's Q2 Contraction Into Perspective”. In the UK, July retail sales increased 3.3% y/y, slightly lower than the previous reading but better than forecasted. July core consumer prices (excluding food, energy, alcohol and tobacco) rose 1.9% y/y. June’s unemployment rate increased to 3.9%.
In Asia, China’s July retail sales rose 7.6% y/y, lower than estimates. July outstanding loan growth rose 12.6% y/y—in line with expectations. Industrial production increased 4.8% y/y in July, missing estimates. In Japan, July retail sales rose 0.5% y/y, in line with expectations. July industrial production decreased 3.8% y/y—more than expected.
The Week Ahead:
The US releases include manufacturing and services Purchasing Managers’ Indexes. In the eurozone, July manufacturing and services Purchasing Managers’ Indexes and core consumer prices are expected. Japan releases core inflation figures and manufacturing Purchasing Managers’ Index data.
Source for all data cited is FactSet. This update constitutes the general views of Fisher Investments and should not be regarded as personalized investment advice. No assurances are made we will continue to hold these views, which may change at any time based on new information, analysis or reconsideration. In addition, no assurances are made regarding the accuracy of any forecast made herein. Global equities are represented by the MSCI World Index. The MSCI World Index measures the performance of selected stocks in 23 developed countries and is presented net of dividend withholding taxes and uses the maximum rate applicable to non-resident institutional investors who do not benefit from double taxation treaties. Past performance is no guarantee of future results. A risk of loss is involved with investments in stock markets.