| USA The Consumer Price Index dipped 0.1% in June instead of rising 0.1% as per consensus. This followed a flat reading the prior month. The core CPI, which excludes food and energy, edged up 0.1%. This was less than the +0.2% print expected by consensus and the smallest increase recorded in 41 months (since 2021M01). YoY, headline inflation came in at 3.0%, down from 3.3% the prior month and one tick below consensus expectations. The 12-month core measure, meanwhile, eased from 3.4% to a 37-month low of 3.3%. This, too, was one-tenth below the median economist forecast. The consumer price index came in weaker than anticipated for the second month in a row in June, with both the headline and the core measures clocking in one tick below consensus expectations. The Producer Price Index for final demand rose 0.2% MoM in June, following a flat print in May and beating the consensus estimate by a tick. The core measure, which excludes food and energy, rose 0.4%. PPI for goods slid half a percent, with energy (-2.6% MoM) making significant contribution. For the services index, prices rose 0.6%, with the largest upside being trade (1.9% MoM). On a 12-month basis, PPI has increased 2.6%, with core measures rising 3.0%. The NFIB Small Business Optimism Index climbed from 90.5 in May to 91.5 in June for a third straight increase and a new high in 2024. The result flew in the face of the consensus forecast calling for a three-tick decline. Still, optimism remained significantly below the indicator’s historical average of 98.0. With the rate path slowly but steadily gaining clarity, small firms became less pessimistic about the future of the economy. Indeed, the net percentage of firms that expected the economic situation to improve moved up from -30% to -25%, the best print since July 2021. As a result, the net percentage of firms that expected positive earnings trends increased slightly (to -29% from -30%). The University of Michigan Consumer Sentiment Index continued its downward trend during the month, moving to 66.0 in July from 68.2 in June. This marks the lowest reading in 8 months. The cause of deterioration is a worse assessment in current economic conditions (from 65.9 to 64.1) and consumer expectations (from 69.6 to 67.2). The median 12-month inflation moved down a tick to 2.9%. 5/10-year inflation expectations posted the same result (to 2.9% from 3.0%). The Federal Reserve “soft landing” was starting to line up in US data, while intended to be backward-looking, may have been an unexpected act of prescience. Chairman Powell offered a similar observation in his testimony to the Senate Committee on Banking, Housing, and Urban Affairs the day before. The Fed chairman made the point in his testimony that they see risks to the Fed’s dual mandate as more balanced than earlier this year when inflation had turned meaningfully higher. More balanced risks mean the Federal Reserve will not delay rate cuts too long for fear of cooling the economy and the labor market too much. Stocks moved higher in the first notably broad advance since mid-April. The Dow Jones Industrial Average, S&P 500 Index, and technology-heavy Nasdaq Composite moved to record intraday highs, but the biggest advance was notched by the small-cap Russell 2000 Index, which gained 6%, marking its best week since early November. As measured by various Russell indexes, value stocks also handily outperformed growth stocks. Trading volumes were light over much of the week, reflecting both the summer vacation season and investors waiting for the arrival of major earnings reports. UK Britain’s housing market remained soft in June but surveyors were more positive about the outlook following this month’s parliamentary elections and with interest rates likely to fall. The RICS (Royal Institution of Chartered Surveyors) monthly net balance of house prices held at -17, marking the joint lowest reading since January. Although activity across the housing market remained subdued last month, forward-looking aspects did improve slightly. A combination of the expected fall in borrowing costs and a greater emphasis on house-building by the new government of Prime Minister Keir Starmer boded well for the sector. The RICS survey pointed to the highest level of sales expectations over the next three months since January 2022. Britain’s economy grew more quickly than expected in May, providing some momentum for the new government but adding to doubts about whether the BoE (Bank of England) will cut interest rates next month. Economic output increased by 0.4% in May, after zero growth in April, according to the Office for National Statistics. A Reuters poll of economists had pointed to a 0.2% monthly increase. The strength of the upturn could dissuade the BoE from beginning to cut interest rates as soon as 1st August, its next scheduled monetary policy announcement date. Three policymakers this week emphasised the strength of domestic price pressures. The chance of a rate cut in three weeks’ time fell below 50% on the futures markets from just above 50%. May saw a broad-based increase in economic output, with the services, manufacturing and construction industries all growing and the latter up by 1.9% on the month, driven by house-building. The figures represented an early boost for the new Labour administration, which has set itself the aim of achieving the fastest growth among the Group of Seven advanced economies on a sustained basis. The improving economic outlook suggests the government may benefit from the economic recovery being stronger than most forecasters anticipate. Three BoE rate-setters indicated that they were still reluctant to vote in favour of lower borrowing costs, prompting markets to scale back bets on a rate cut at the 1st August meeting. EU Data from online jobs platforms indicated that the Y-o-Y increase in salaries for euro area openings listed stood at 4.20% in June, an acceleration from the annual increase of 3.47% recorded in May. In local currency terms, the pan-European STOXX Europe 600 Index ended the week 1.45% higher as investors welcomed lower-than-expected US inflation data. Major stock indexes rose as well. France’s CAC 40 Index added 0.63%, Italy’s FTSE MIB put on 1.74%, and Germany’s DAX gained 1.48%. Speaking at the EESC plenary debate with the Hungarian Minster for European Union Affairs, European & Social Committee President Stefano Mallia stated that in order to make Europe greater, the EU needs, amongst other things, better designed legislation and a healthy business environment. CHINA China’s economic recovery has been uneven this year despite numerous measures to spur growth as a protracted property sector slump and weak domestic demand have restrained consumer prices. Many analysts have shifted focus to the Third Plenum on 15th July, a three-day meeting of the Chinese Communist Party that is expected to unveil key economic policies for the coming years. China’s Consumer Price Index rose a lower-than-expected 0.2% in June from a year earlier, narrowing from May’s 0.3% rise. Core inflation, which strips out volatile food and energy costs, rose 0.6%, unchanged from May. The Producer Price Index fell 0.8% from a year ago, marking its 21st month of decline, but eased from a 1.4% drop in May. Exports exceeded forecasts in June, rising 8.6% from a year earlier, up from 7.6% growth in May. Analysts attributed the strength in overseas demand to manufacturers front-loading shipments ahead of potential tariff hikes from several major trading partners. However, imports unexpectedly shrank 2.3% in June, down from May’s 1.8% gain amid weak domestic demand. The overall trade surplus increased to a multi-decade high of USD 99.05 billion from USD 82.62 billion in May. Chinese stocks gained as strong export data offset concerns about deflationary pressures. The Shanghai Composite Index rose 0.72% while the blue-chip CSI 300 added 1.2%. In Hong Kong, the benchmark Hang Seng Index was up 2.77%, according to FactSet. |
| Sources: T. Rowe Price, Wells Fargo, TD Economics, National Bank of Canada, MFS Investments, Reuters, Marina Cassar Derjavets. |
