American retail sales increased more strongly than expected in July. The fourth monthly increase in sales indicates that the world's largest economy remains in fairly solid shape. A positive aspect regarding the inflation trend in the US was provided by import prices, which in July recorded their sixth decline in succession. However, concerns about China's economic development and rising bond yields are currently depressing sentiment on the stock markets.
In New York, the stock indices turned south again yesterday after a positive start to the week. The focus was on uncertainties regarding the economic development in China and the latest economic data from the US, which could move the Fed to raise interest rates further. The focus will therefore also be on the minutes of the Fed's last interest rate decision, which will be published this evening (8:00 p.m.). The Dow Jones Industrial extended its losses during the day and closed at 34,908.0 points 1.02% lower and below the 35,000-point mark. The S&P 500 lost 1.16% on Tuesday and ended trading at 4,437.86 points. On the Nasdaq, the indices also fell by about one percent. Into the weight was also a warning by the rating agency Fitch to review ratings of banks regarding a downgrade. Already last week, Moody's had lowered the rating of ten US banks and put other financial institutions on a watch list for possible downgrades. Meanwhile, the yield of ten-year US government bonds climbed again higher to just under 4.25% and was now currently quoted at 4.20%.
Sales in the US retail trade increased in July monthly by 0.7% and thus almost twice as strongly as analysts forecast on average. Retail sales are considered an indicator of the strength of consumption in the US. At the same time, prices of goods imported into the US continued to fall sharply in July. Import prices fell by 4.4%. On the other hand, the monthly survey by the New York Fed put a damper on economic optimists. According to the survey, industrial sentiment in New York State deteriorated further in August. The corresponding Empire State index slipped from plus 1.1 to minus 19.0 points (consensus -1.0). A reading below zero signals a decline in economic activity.
Asia's stock markets fell on Wednesday, mirroring the movements on Wall Street. In Tokyo, the Nikkei 225 traded about 1% lower despite an improvement in business sentiment in July, according to a Reuters poll. South Korea's Kospi lost nearly 1.3% and in Australia the S&P/ASX 200 traded lower by about 1.4%. Hong Kong's Hang Seng index slipped 1.05%, while mainland Chinese markets were also weaker with the CSI 300 index down 0.35%. China's house price index fell into contraction territory for the first time since April. According to media reports, China's government may consider easing equity trading in the People's Republic as part of a reduction in stamp duty on traded shares. On the capital markets, concerns about the further development of the Chinese economy and regarding problems in the real estate sector have recently increased.
In Germany, the assessment of financial experts surveyed by the Mannheim-based ZEW economic research institute of the economic trend improved unexpectedly in August. The ZEW sentiment indicator increased by 2.4 points to minus 12.3 points (consensus -14.9). By contrast, the assessment of the current economic situation deteriorated sharply, and the index fell to its lowest level since August 2020. According to the ZEW, it is noteworthy that most of the financial professionals surveyed do not expect any further interest rate hikes in the euro area or the United States.
At an extraordinary meeting, the Russian central bank reacted to the further devaluation of the ruble with a sharp rate hike of 350 basis points. The key interest rate is now 12.0 percent. The ruble subsequently recovered only slightly, however, after the exchange rate had reached its lowest level against the US dollar since March 2022 at the beginning of the week.
Corporate news in focus: Aviva and Carlsberg with half-year figures as well as Cisco Systems with Q4 figures, Applied Materials Q3 and Target Q2.
Economic data in focus: UK consumer and producer prices July (08:00 CET), Eurozone GDP Q2 (2nd release) and industrial production June (11:00), From the USA: Housing starts and building permits July (14:30), industrial production July (15:15) and FOMC meeting minutes (20:00).
Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.