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Recession Alert- Recession Alert.
Weak Chinese data Wednesday has bought new fears into markets of a potential recession. A sharp decline in Chinese Industrial Production figures and Retail Sales for July has inflicted fresh anxiety and raised alarm bells with numbers representing a deceleration in industrial output – the worst since February 2002. Global growth expectations are driving the easing seen recently by central banks and a broad “risk-off” tone. The global barometer or measure of this is viewed through the 10 year US Treasury price. Right now the 10 year bond is inverted to its lowest level since 2007 at 1.58% and the 2 year at 1.59%. This is the first real time since 2008 we have seen a real chance the US Federal Reserve may struggle to relieve the current economic pessimistic situation as the yield curve reflects overall concerns by investors that economic uncertainties such as the ongoing trade war between China and the US will flow through to consumers impacting future positive data such as GDP and inflation. US CPI inflation surprisingly rose in the month of July to 0.3% m/m up from 0.2% with the y/y rate up to 2.2%. We expect the CPI rate to steadily climb as retail products increase due to increased tariffs and will be passed onto consumers. US equity prices have fallen Wednesday with the S&P down 3.06%, DOW down 3.16% and the Nasdaq also down 3.17% as risk products across the board took hits.
UK inflation rose unexpectedly to 2.1% y/y edging higher from expectations of 1.9% in June which is an incredible result given recent downward pressures complicated by Brexit and economic uncertainty. Boris Johnson made comment he wants to leave the EU with a deal but said “we need our EU friends to compromise”. The EU maintains their earlier position that the prior agreement struck by Theresa May is the only deal on the table. MP’s are increasingly of the view that they can block Brexit which pushes the likelihood of a “no deal” Brexit before the deadline of 31 October.
The Australian Unemployment rate released steady at 5.2% with full time and part time employment sharply up by 41,000 well above the expected 15,000 number. The Australian dollar rose across the board as Australian employment goes from strength to strength. The RBA will have monetary policy in mind with businesses clearly still hiring and perhaps may dial back forecasts for further interest rate cuts.
UK and US Retail Sales figures released overnight with both exceeding expectations for July. US value of sales climbed to 0.7% after 0.3% for June with consumers continuing to spend and prop up the little growth in both economies which still remains. The Pound spiked half a cent on the news but the US Dollar strangely remained anchored around the 106.00 area against the Japanese Yen.
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