Devil In The Deltas
12 July 2021
Investors are faced with having to triangulate between infection rates, the percentage of populations vaccinated and the hospital occupancy.
4 min read
12 Jul 2021
Economic Highlights
Welcome to our Economic Highlights, bringing you market updates from across the UK, US, Europe and China, as well as the FTSE weekly winners and losers.
UK
GDP rose by 0.8% m/m in May, which was well short of consensus expectations of +1.5%. The underperformance was seen in all sectors. The service sector grew by 0.9% m/m (f/c +1.6%), particularly surprising given the relaxation of social restrictions.
Meanwhile industrial output growth was +0.8% (f/c +1.5%) and construction output declined -0.8% (f/c +1%). Poor weather and supply chain issues in the automotive industry were blamed for the shortfalls, but monthly data, as it is now published, is always going to be more volatile.
US
The ISM services index fell back in June, suggesting that supply shortages and price increases are becoming an increasing drag on hiring and economic activity.
The decline in the headline index to 60.1 (from 64.0) reflected steep drops in the business activity index to 60.4, from 66.2, and the employment index to 49.3 (55.3). The comments accompanying the survey made it clear that labour and supply shortages are squeezing output, with the backlog of orders index rising to 65.8 (61.1), although the supplier delivery times index did drop back a bit to 68.5 (70.4). All in all, signals that inflation might remain a bit higher for longer, but that the Fed will be reluctant to tighten policy too quickly.
Europe
Final PMI readings were generally a little stronger than the flash signals, and the Euro Area Composite PMI hit a 15-year high of 59.5 (vs. flash 59.2), showing no signs of growth momentum slowing… yet.
Country readings were also strong, with Spain’s composite PMI of 63.4 at its highest level since February 2000, whilst France’s was revised up to a 3-year high of 57.4. Even in Germany, where the revision was slightly downwards to 60.1, that still marked the highest final level in a decade.
China
The People's Bank of China announced a cut to the Reserve Requirement Ratio (RRR) for all banks by 50bps to 10.5%.
This move allows banks to create more credit for borrowers, and could be a signal that the government is concerned that economic growth is decelerating a bit too quickly for comfort following an earlier tightening of policy. The Q2 GDP release due out this week will perhaps provide the evidence.
Source: FactSet
Source: FactSet