China 2Q macroeconomic updates beat expectations by significant margin. Alas, growth rested on two “good old” economic drivers – industrial production and exports, while retail sales made a negative contribution:
Retail sales were expected to rise 0.5% but failed to do that dropping 1.8% YoY.
What is interesting, in the West, conversely, the major momentum of recovery originated in retail sales. It appears that different governments pursue rebound of the GDP components which are the most effective to achieve growth. And indeed, if share of consumption in GDP (i.e. spending on final goods and services) is 71% in the US, 52.4% in the EU, then in China it is only 38.7%.
US export and import prices rose stronger than expected in June, indicating a favorable trend in foreign trade, and, not least, positive forward-looking expectations of retailers in the US. Industrial production in the United States unexpectedly jumped by 5.4% in monthly terms (+ 4.3% forecast), but in annual terms it was in the red by 10.8%. In general, recent macro developments do look like a V-shaped rebound, justifying market buoyancy. Stock indices enjoyed growth thanks to data which meets even bold growth hypotheses, with the S&P 500 closing almost 1% higher. Index futures have been trying to extend rally today.
It is hard to see what could spoil investor sentiment in the near-term after a slew of positive data which solidifies recovery story. From the economic calendar, claims for unemployment benefits, retail sales in the United States for June and a press conference by ECB President Christine Lagarde have some potential to move market, but the head of the ECB is expected to indicate wait-and-see stance of the central bank and leave sentiments on Euro largely unchanged. I still tend to think that USD should depreciate further because imbalances in stimulus hope in the US and Europe. Stocks in Europe got a little bit nervous ahead of the ECB meeting with the STOXX 600 down 0.8%.
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