20160718-招商证券_香港_-Global_Macro_Weekly_Digest__Issue_47__16页_1mb

Macro Report Summary (July 18, 2016)

Core Content

This macro report from China Merchants Securities (Hong Kong) provides an analysis of global macroeconomic developments and market movements for the week of July 18, 2016, with a focus on the U.S., Eurozone, and Japan.

Key Points on the ECB

• Policy Outlook: The European Central Bank (ECB) is expected to remain in a wait-and-see mode this week, likely not making major policy changes. The ECB will release its bank lending survey and hold a monetary policy meeting, but it is unlikely to cut interest rates or expand its quantitative easing (QE) program.
• Reasons for Caution: The ECB is cautious due to fading inflation expectations, stabilizing markets post-Brexit and Italian banking concerns, and the potential negative impact of further rate cuts on the banking sector. Additionally, liquidity constraints during the low liquidity season are a barrier to expanding QE.
• Market Impact: If the ECB remains neutral and the upcoming PMI data and lending survey show strength, the Euro may appreciate slightly in the short term. However, the medium-term outlook for the Euro is still bearish due to unresolved structural issues and expected future easing.

U.S. Economic Data Overview

• CPI: June CPI rose to 1.0%, slightly below expectations, but core CPI increased to 2.3%, the highest in six years. This indicates rising inflationary pressures.
• Retail Sales: June retail sales increased by 0.6% (seasonally adjusted), far exceeding expectations. This suggests a strong domestic demand.
• Industrial Production: Industrial production rose by 0.6% in June, slightly above expectations, with a notable rebound in auto production. However, manufacturing output growth was weak, and the overall industrial output was still below trend.
• Consumer Confidence: The Michigan University Consumer Confidence Index rose to 93.5, indicating some recovery in consumer sentiment.
• Labor Market: The unemployment rate was 4.9%, with a slight improvement in the labor market. Non-farm payrolls increased by 287,000, suggesting some job market resilience.

Eurozone Economic Data Overview

• Industrial Production: May industrial production declined by 1.2%, the lowest since 2012, indicating a fragile economic recovery. Germany led the decline with a 1.3% drop.
• PMI Data: Eurozone PMI composite index was at 53.1, slightly above expectations, but the manufacturing PMI was 52.8, showing a slow recovery.
• Inflation: HICP for June was at 0.1%, and core HICP at 0.9%, suggesting a lack of inflationary pressure.
• Unemployment: The unemployment rate was at 10.9%, with a slight decrease expected as the economy recovers.
• Trade Balance: Trade balance was at 3.2%, with a contraction in exports and an increase in imports, indicating a weak external demand.

Japan Economic Data Overview

• PPI: June PPI declined by 4.2%, continuing a 13-month deflation trend. Energy and industrial prices remained under pressure.
• PMI: The composite PMI was at 51.5, and the manufacturing PMI at 50.1, indicating a contraction in economic activity.
• Consumer Confidence: Consumer confidence index fell to -7.3, showing weak consumer sentiment.
• Unemployment: Unemployment rate was at 3.4%, with a slight improvement expected.
• Yen Trends: The yen weakened against the dollar, reflecting reduced concerns over Brexit and a stronger U.S. economy.

Market Performance

• Stock Indices: The Hang Seng Index rose 5.3%, while the S&P 500 increased 1.49%. The Stoxx 50 Index and FTSE 100 rose by 4.3% and 1.2%, respectively. The Nikkei 225 gained 9.2%.
• Bond Yields: U.S. 10-year Treasury yield was at 1.55%, with a slight increase. The Eurozone 10-year yield was at 0.01%, while the Japanese 10-year yield was at -0.23%.
• Currency Trends: The dollar index fell slightly, while the Euro and Yen showed mixed movements. The EUR/USD was at 1.09, and the USD/JPY at 104.88.

Key Forecast

Conclusion

• The ECB is unlikely to make major policy moves this week, with the Euro showing potential for short-term appreciation if data is strong.
• The U.S. economy shows signs of improving with stronger retail sales and industrial production, although core CPI remains elevated.
• The Eurozone faces continued challenges with weak industrial production and low inflation, leading to expectations of future easing.
• Japan continues to experience deflationary pressures, with PPI and CPI data indicating a prolonged period of price declines.
• Global markets have shown mixed performance, with the yen weakening and the dollar index fluctuating.