Two features clouded sentiment somewhat last week. The first was the lack of progress in the stalemate in the American Congress, in which the Republican Senate and the Democrat House were unable to reach a compromise agreement on the size of the fiscal support package needed to replace those benefits that expired at the end of July. The House and Senate are now in recess and, unless an extraordinary procedure is invoked to recall congress early, a vote in the Senate is unlikely to be scheduled until 8 September. The second was the release of Chinese data, which saw retail sales (-1.1% year-on-year) and industrial production (+4.8% year-on-year) numbers for July slightly worse than forecasts (0% and 5% respectively). Even so, it is worth noting that the S&P 500 ended the week just 0.4% below its all-time high of 3,386, reached on 19th February this year. Goldman Sachs has increased its year-end target for the index to 3,600 from 3,000.
Although the UK registered a 20.4% drop in 2Q GDP, the monthly GDP report was slightly better than forecast as June showed the UK economy rebounding faster than expectations. According to the Office for National Statistics, June saw an annualised growth rate of 8.7%, versus forecasts of 8%. Andy Haldane, the Bank of England’s chief economist, was quoted in the Daily Mail over the weekend as saying that the UK is on track for a quick recovery.
Over the weekend, protests continued in Belarus and Russia indicated it may be prepared to help maintain stability, if requested to do so. Tensions between China and the US continue to rise after President Trump confirmed his order that TikTok sell its US assets within ninety days. It was also confirmed that other Chinese companies are being looked at as potential targets for action. The two countries were scheduled to hold talks to monitor the progress on their Phase 1 trade deal, but this did not take place. The US has also finalised the sale of 66 F-16 jets to Taiwan- the first sale of military aircraft to Taiwan since 1992.
Turning to coronavirus figures, the global seven-day average number of new infections is at just over 262,000 per day, just above the previous high on 2 August. Spain’s Basque region has declared a state of emergency and Germany has advised against all non-essential travel to the country. Whilst I often try to deflect domestic-focussed questions as we look globally, I found this chart interesting and disheartening in the context of the recently-introduced France quarantine rules by the UK government:
Retail sales in the US, Japan and Europe are now up year-on-year, though not in China:
Looking to the week ahead, the Democratic Convention begins today and Brexit negotiations recommence tomorrow. In terms of data releases, UK inflation data will be released on Wednesday along with the latest minutes on monetary policy from the Federal Reserve. This is followed by the latest European central Bank meeting minutes on Thursday, then UK July retail sales and Euro area consumer confidence on Friday. In terms of corporate news flow, this week sees earnings announcements from Wal-Mart, Home Depot, Estee Lauder and Alibaba.