Fisher Investments recaps the biggest market, political and economic news from last week, including US GDP, eurozone money supply (M3) and Japanese Leading Economic Index (LEI) figures.
In the US, the second estimate of Q2 2020 GDP was -31.7% annualized, slightly better than the first estimate. July new home sales rose 15.1% m/m and July durable goods orders rose 11.2% m/m, exceeding expectations. On Thursday, the Federal Reserve announced a change in how it plans to approach policy decisions in relation to its long-term inflation target. The Fed implied it may wait to raise rates until inflation actually surpasses its 2% target for some time, as opposed to preemptively raising rates due to high employment or when inflation simply nears the 2% threshold. Some hail this as a landmark shift, but we believe it’s unwise to read too much into what Fed officials say. Future Fed decisions are likely impacted by yet-to-be-released economic data and individual Fed officials’ interpretations of these data—which are unknowable at this time and impossible to predict. For more, see our 8/27/2020 commentary, “The Fed’s “Strategy Refresh” Mirage.” In politics, the Republican Party held its national convention, during which President Trump formally accepted the party’s nomination for this year’s election.
In the eurozone, July money supply (M3) rose 10.2% y/y, surpassing estimates. In the UK, national debt crossed £2 trillion for the first time, surpassing its GDP level and sparking concerns. While we continue to monitor national debt levels, we don’t think debt-to-GDP comparisons are too telling. In our view, a much better gauge of a country’s debt affordability is comparing debt interest payments to tax revenues. UK interest payments were just 4.7% of tax revenues in 2019—the lowest level over the past 20 years. Thus, we believe 2020’s debt increase likely won’t prove onerous to the UK economy. For more, see our 8/26/2020 commentary, “Why High Debt Doesn’t Imperil Growth.”
In Japan, the final June Conference Board Leading Economic Index (LEI) fell 0.5% m/m, in line with forecasts. July exports and imports fell 19.2% y/y and 22.3% y/y, respectively. On Friday, Prime Minister Shinzo Abe announced his resignation due to health reasons. Abe will remain as Prime Minster until his Liberal Democratic Party—which holds a majority in Japan’s parliament—selects his successor.
The Week Ahead
The US, eurozone, UK, Japan and China announce August services and manufacturing purchasing managers’ index (PMI) readings. The US also releases August unemployment. The eurozone posts August retail sales, consumer prices and unemployment. Japan reports July unemployment, preliminary industrial production figures and preliminary retail sales.
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.