This week in China, data revealed some moderation in the region’s economic momentum. Factory output grew 4.5% year on year in July, down from 5.3% in June. Compounding this, consumers also kept their purses firmly in their pockets, with retail sales growing by just 0.6%, compared with 1% in June. The significance of the data is being treated with some caution, with markets reluctant to interpret it too negatively at this stage. Premier Li Qiang suggested that authorities need to step up efforts to boost overseas demand to offset lacklustre domestic consumption. However, the government may view the latest figures as a temporary anomaly, given that recent weather disruptions may have contributed to the weakness and will wait to see whether a similar pattern emerges in August – particularly since there were some more encouraging indicators within the data. Manufacturing growth remained robust, increasing 5.5% year on year in July, while high-tech manufacturing accelerated by 16.9%. Markets now have their ears attuned to whether the People’s Bank of China will begin to ease monetary policy later this year should conditions not improve and whether further stimulus measures could be announced at the next Politburo meeting in September.
Data released early this week indicated that the UK’s labour market is showing further signs of gradual cooling. Unemployment remained steady at 4.9%, while the number of job vacancies fell to 707,000 in the three months to July, down from 711,000 in the three months to June. This was the lowest level since the three months to April 2021, during the pandemic, with smaller businesses citing a lack of sufficient demand and cost pressures as reasons for holding back on replacing departing staff. Private-sector earnings, which are closely watched by policymakers because of their potential inflationary impact, rose 2.8% year on year in the three months to June. This represents another relatively moderate reading and provides further evidence of easing wage pressures. Overall, the latest data point to a gradual softening in labour market conditions, consistent with increasing spare capacity and weaker recruitment activity, rather than a sharp deterioration in the employment picture.
Tensions between the US and Iran have escalated, with President Trump saying on Tuesday that talks with Tehran had stalled and that no further discussions were currently planned. His comments followed an attack on a vessel passing through the Strait of Hormuz, while shipping through the key energy route has remained severely disrupted. Although Trump maintains that the Strait is open and operating, Iran disputes this. While Brent Crude has fluctuated to above $90 per barrel as the two sides continue to exchange jibes, there is little new for investors to be fixate upon – given that the latest is a reiteration of events ongoing for several months now and since oil remains largely within previous trading ranges.
UK inflation data was posted this morning. CPI rose to 2.9% in July, up from 2.6% in June. The increase was widely expected and was driven in part by the largest rise in gas prices for almost four years following the conflict in the Middle East. Core inflation, which excludes energy and food remained unchanged in July, suggesting that underlying price pressures remain relatively contained. The ONS also highlighted rising prices for furniture and household goods, as well as clothing and footwear, which contributed to the overall increase. While the Bank of England will be watching the latest figures closely, but they were broadly in line with expectations and do not yet indicate that elevated inflation is becoming embedded in the UK economy.
Still to come this week are Japan’s trade balance figures, US initial jobless claims, the Federal Reserve meeting minutes, UK retail sales data, and global PMI readings.
Nicola Tune, Portfolio Specialist
