Economic Highlights

The UK monthly GDP figure for June was fairly resilient with a decline of 0.6% versus a consensus decline of 1.3%. The consumer services component of GDP was flat, despite plenty of headlines on the cost of living crisis that could be material in later GDP releases. The production component of GDP showed signs of strain and was down 0.9%, manufacturing output declined 1.6% on the month and construction declined 1.4%. The cost of living crisis debate intensified last week with the consultancy, Cornwall Insight, estimating that in January 2023, the price cap will increase to £4,266. There is likely to be a focus on intervention from the UK Government when the newly elected Prime Minister takes charge.

The European energy situation was an ongoing concern last week with Natural gas futures increasing by 5% to 206 euros per megawatt-hour (trading at around 80 euros in June). Europe could face an energy supply shortage in the winter and this could be exacerbated by the droughts in Europe, particularly on the river Rhine. On the economic data front, industrial production increased by 0.7% month-on-month vs consensus 0.1% and year-on-year 2.4% vs consensus 1%.

The US CPI figure was better than expected last week, with the hope that pricing pressures are past peak figures. The July CPI figure was 8.5% (prior period 9.1%) vs consensus 8.7% and the data fell for only the third time in the last 20 months. This was an important data release for the Fed and their appetite (or lack of) for another 75bp increase in the Fed Funds rate at the next Federal Open Market Committee meeting in September. The PPI figures followed a similar trend with 9.8% year-on-year increase (prior period 11.4%) compared to consensus expectations of 10.4%. The PPI figure excluding Food and Energy did increase 7.6% year-on-year (prior year 8.4%), a touch below the consensus expectations of 7.7%.

Geopolitical tensions have been the focus since US Speaker Nancy Pelosi’s visit to Taiwan. China recently lowered the rate on its one-year medium term lending facility by 10bps. This was driven by weak credit data with authorities looking to help by easing policy and supporting the credit market. Growth in retail sales decreased in July to 2.7% year-on-year vs consensus expectations of 5.5%. Industrial output also decreased in China to 3.8% year-on-year vs consensus expectations of 4.6%. The Chinese Community Party clarified last week that its guidance for 2022 growth was still estimated to be 5.5%, even with COVID-19 persistently being a problem in the country.