The focus yesterday was on US PPI but there were other data released yesterday. From Reuters:
U.S. producer prices rose a steeper-than-expected 0.5 percent last month as food prices jumped, the government said on Tuesday, leading markets to boost bets for another Federal Reserve interest rate hike.
However, the core producer price index, which strips out volatile food and energy costs, rose just 0.2 percent, matching Wall Street forecasts and helping to temper inflation fears...
The National Association of Home Builders, an industry trade group, said its index of home-builder sentiment dropped 3 points to 39 in July, its lowest since December 1991.
Two other reports showed U.S. chain store sales slowed last week from a week earlier, suggesting warmer-than-normal weather and high gasoline prices deterred shoppers...
Separately, the U.S. Treasury Department said net inflows of capital into the United States rose to $69.6 billion in May. Analysts said the increase, which was larger than expected, showed demand for dollar-based assets remained solid.
The theme of higher inflation but slower growth was repeated in Europe. Reuters on UK inflation:
A record increase in household utility bills pushed the inflation rate further than expected above target to a nine-month high in June, boosting expectations of an interest rate rise...
The Office for National Statistics said the consumer price index rose 0.3 percent last month, pushing up the annual rate to 2.5 percent, much higher than the 2.3 percent forecast by analysts and the strongest since September 2005.
FT on Germany's ZEW index:
German investor confidence has dropped unexpectedly for the sixth month running, highlighting fears that the country’s economic upswing may soon fade and signalling disappointment with Berlin’s reform agenda.
The economic sentiment indicator compiled by the Mannheim-based ZEW institute dropped further than expected by 22.7 points in July to 15.1 points – the lowest since May 2005 and well below the index’s historical average of 35.2 points.
But meanwhile, Japan's service economy grew in May. From Bloomberg:
Japan's service economy unexpectedly expanded in May, as demand for spas and beauty care rose, signaling non-manufacturers are contributing more to an economy that's heading for its longest postwar expansion.
The tertiary index, a gauge of demand for services including retail, travel and media, rose 0.5 percent from April, the trade ministry said today. The median forecast of 24 economists surveyed by Bloomberg was for a 0.3 percent decline...
Wages rose a revised 0.5 percent in May from a year earlier, a labor ministry report showed today... Wages adjusted for inflation slipped a revised 0.1 percent in May.
And growth certainly has not slowed in China. From AFP/CNA:
China's economy expanded at its fastest pace in a decade with growth of 11.3 percent in the second quarter, official data showed Tuesday, exceeding expectations and possibly signalling the need for new cooling measures...
China's consumer price index -- the main gauge of inflation and a key factor in determining the temperature of the economy -- rose 1.4 percent in the second quarter of the year compared with the same period in 2005.
The index was up 1.5 percent in June alone and 1.3 percent for the six months, according to the bureau.
But Andy Xie thinks that a stormy summer lies ahead for Asia.
Softening global demand and rising oil prices are squeezing export-dependent Asia. If current high oil prices persist until the year-end, the region could suffer income loss of 1.2% of GDP. Moreover, if US imports from the region stop growing in 2H06, I estimate that the region could see its GDP growth rate cut by a further 1.2 percentage points directly...
The region’s governments still want to keep interest rates low to help growth. The net effect of this is an ‘inflation tax’ on the region’s consumers to subsidize consumers in developed economies. This encourages the major central banks to take a gradualist approach to raising interest rates, which in turn encourages oil speculation and puts more pressure on Asia...
Asian financial markets look to be entering their most difficult period for five years. I believe that a considerable shake-out is likely over the summer. In particular, as investors are still long Asia on a bullish outlook for the global economy, which is likely to be wrong, in my view, the unwinding could be quite painful for Asian assets. Indeed, if the Fed flip-flops again and turns hawkish on inflation, we could see a capitulation sell-off in the summer.
Indeed, the July Merrill Lynch survey of fund managers found that most investors polled expected the global economy to weaken over the next 12 months. Investors declared themselves more risk averse than they have been in years with a net of 12 percent seeing emerging markets equities as the least favourable compared to a net 6 percent who saw them as the most favorable in June. Asia ex-Japan was also expected to see a weaker economy and higher inflation but no recession.
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