US Growth Undershoots and China’s Regulatory Clampdown Continues

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03/08/2021
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US Growth Undershoots and China’s Regulatory Clampdown Continues

The US economy grew at one of the fastest rates in history in Q2 with an annualised rate of 6.5% according to an initial estimate of Gross Domestic Product (GDP). However, this represented a fairly substantial undershoot versus consensus forecasts which anticipated a rate of 8.5%.  The US trade balance detracted from the reading as imports outstripped exports, whilst inventory levels also detracted.  Supply bottlenecks have been a common occurrence in a number of industries as lockdown restrictions have eased worldwide. Personal consumption exceeded forecasts, growing strongly at 11.8%.[1]

Chinese stocks however suffered heavy losses early in the week as regulators again turned the focus on its own tech companies in an effort to bring about greater domestic competitiveness. Online education companies were the latest industry in focus, but heavy selling led Beijing regulators to then take steps to soothe investor concerns.  Speaking to executives of major investment banks around the world, the China Securities Regulatory Commission sought to reassure them that a recent crackdown on e-commerce and online education was not going to spiral into other sectors. The China CSI 300 index closed the week some -5.5% lower.

US and UK equity markets were largely unmoved over the course of the week; the American S&P 500 index losing -0.4% and the UK’s FTSE 100 up +0.1%.  Elsewhere, shares in Europe were also little changed whilst Japan’s Nikkei 225 index fell -1.0%.

US Treasuries continued to see volatility as the yield on the 10-year note dropped to 1.23% from 1.30% the previous week.  The US Federal Open Market Committee’s statement following its two-day policy meeting again referred to inflationary pressures as transitory but suggested some progress had been made towards its goals to begin tapering asset purchase programme. The central bank ultimately chose to keep interest rates and bond purchases unchanged.

The price of oil climbed modestly last week. A barrel of West Texas Intermediate crude rising to $73.81 at Friday’s close from $72.20 a week earlier.

 

Week Ahead

The first Friday of a new month brings the latest US Labour Report.  The unemployment rate is expected to continue its improving trajectory and edge 20 basis points lower to 5.7%, whilst the non-farm payroll change is forecast to show 875k new jobs created. 

With a raft of Purchasing Managers Index (PMI) data releases due this week, a measure of business activity, the US publication from the Institute for Supply Management will be closely watched given modestly weaker data at the last reading.

The Bank of England’s Monetary Policy Committee meets on Thursday.  Despite a number of members voicing concerns in recent months that the bank’s asset purchase programme could lead the economy to overheat, the committees vote is still expected to result in no change at this stage. [2]

 

Read last week's market update

Equities Recover Lost Ground as Delta Fears Ease

 

 

Market data: FE Analytics

 

[1] BEA - Annual Update -  29.07.21

[2] Forex Factory - 25.07.21

 

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