Economic Highlights

Retail sales rose 0.5% m/m in June, mainly thanks to extra food sales during Euro 2020 (+4.2%). Fuel sales also rose (+2.3%) as re-opening continued. A fall of 3.7% in online sales, despite the presence of Amazon Prime Day, suggests some online shopping fatigue and a preference to “do” stuff rather than acquire stuff after being locked down. Somewhat disappointingly, though, the setback in July’s Services PMI reading to 57.8 from 62.4 suggests some delay to the re-opening trade, with the Delta variant taking much of the blame. That should be relatively temporary. Meanwhile the government’s finances, with a borrowing requirement of £22.8bn in June, came in below the Office of Budget Responsibility’s forecast, with strong tax receipts outpacing more furlough payments.

US Manufacturing remains in good health, with the PMI reading rising from 62.1 to 63.1 in July. However, lingering COVID variant fears helped to push the Services reading down from 64.6 to 59.8. That means growth is still strong and above trend, but decelerating, which markets always find a bit challenging. We are beginning to see small downgrades to current year GDP growth forecasts from the (previously) more optimistic economists, but there is no cause for alarm, and the second quarter earnings season shows corporate America to be in fine fettle.

PMI data for July followed a similar pattern to that seen in other regions, with Manufacturing sentiment relatively resilient (62.2 vs 63.4) and Services a touch weaker (58.3 vs 60.4). Again, the Delta variant is to blame. But the underlying trend remains very positive, and policy will remain highly supportive. The ECB followed up its recent policy review with a commitment at its latest council meeting to keep rates low until inflation is much more firmly entrenched at its 2% target rate. Futures markets do not envisage an interest rate rise until at least 2025.

Very little economic data last week, but more regulatory crackdowns, this time on the private (not) for-profit (anymore) education sector. There  might be social reasons claimed for doing this, such as curtailing the pressure on students (?), but it looks like another attack on an industry that has become a bit too powerful and profitable. The weekend brought further news of a tightening of the reins on the music licencing arm of Tencent, the online multi-media and technology company. The state continues to make its presence felt, and in a manner not welcomed by investors.