U.S. Economy Improves On Retail Sales As Inflation Remains Subdued, Chinese GDP Data Seen Stablising, ASX SPI200 Futures Down 11 Points

U.S. equity markets closed flat on Friday following mixed data that showed the underlying economy continues to improve while inflation remains subdued. Advanced retail sales, a monthly measure of sales of goods to consumers at retailers which provides insights into consumer demand, unexpectedly increased 0.6% month on month in June compared with estimates of a 0.1% gain. Both industrial and manufacturing production for June beat estimates with readings of 0.6% & 0.4% against expectations of a 0.3% increase across both areas.

While these figures highlight the U.S. economy is improving driven by the consumer which is benefiting from increased confidence from a rising housing market, inflation readings missed expectations. The consumer price index month on month for June increased 0.2% with forecasts for a 0.3% gain, year on year prices rose 1.0% against expectations of a 1.1% increase while a less volatile measure excluding food & energy increased 2.3% slightly higher than the consensus view of 2.2%.

Elsewhere the University of Michigan consumer confidence survey contrasted the pickup in retail sales, the survey had a reading of 89.5 below forecasts to remain unchanged at 93.5. In reaction the U.S. dollar index gained +0.52% while both the S&P500 & Nasdaq100 closed -0.09% & -0.14% lower.

Commodity prices were higher despite the stronger U.S. dollar with both WTI & Brent crude oil up +0.59% & +0.51% respectively following possible supply disruptions following reports of a military coup in Turkey. Natural gas also gained +1.06% while copper declined -0.47% and iron ore was -0.09% weaker. Precious metal spot gold finished +0.17% higher while spot silver fell -0.40%.

In Europe key equity indices were generally flat as the Euro fell -0.50% despite a CPI reading for June year-on-year remaining stable at 0.1% while the core measure (excluding food & energy) remained unchanged at 0.9% as forecast. The Euro Stoxx 600 finished 0.17% weaker, the DAX30 was flat  -0.01% while the FTSE100 benefited from a -0.82% decrease in the Pound to close 0.22% higher.

News was released on Friday after European markets had closed that an attempted coup was underway in Turkey by the military against President Recep Tayyip Erdogan. The coup was quickly squashed over the weekend however reports so far suggest as much as 200 people were killed in skirmishes across the country as police and military clashed. Turkey has a long standing history of coup’s by the secularist military, of which some have viewed President Erdogan’s recent consolidation of power as beyond the scope of his role including pushing former Prime Minister Ahmet Davutoglu to resign in May.

The event is unlikely to have any significant impact across developed markets given there is certainty that Erdogan remains in control and what the markets hate is uncertainty. The chart below shows the Turkish Lira which plunged -4.78% immediately following the news but has regained 1.90% early this morning.

Asia markets were generally higher on Friday following better than expected data out of China. GDP increased 1.8% during the second quarter surpassing expectations of a 1.6% increase, year-on-year the economy expanded at 6.7% vs estimates of a 6.6% increase. Further data showed industrial production for June from a year earlier increased at 6.2% vs estimates of 5.9%, retail sales jumped 10.6% vs 9.9% expected while fixed asset investment missed expectations of a 9.4% gain with a reading of 9.0%.

Recent data from China including producer prices which feed through to consumer prices are showing signs that the world’s second largest economy is stabilizing, or at least the rate of declines are slowing. This is a positive sign although it won’t be all smooth sailing as there is still a long way for the economy to go as it changes from one driven by investment growth to one driven by the consumer.

 The Hang Seng closed +0.46% higher while the CSI300 finished flat, down -0.01%.Elsewhere the Nikkei 225 index gained +0.68% and the ASX200 finished +0.33% higher as the Australia dollar dropped -0.41%. Domestically the market is set for a weaker open this morning with ASX SPI200 futures down 11 points.  If you’re interested in trading global markets and still need practice, click here to open a free $100,000 Rivkin Trader account.

Source: Rivkin, Bloomberg

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This article was written by James Woods - Global Investment Analyst, Rivkin Securities Pty Ltd. Enquiries can be made via info@rivkin.com.au or by phoning +612 8302 3600.

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