Disappointed by weak macro data, markets remain uncertain about a rate hike
Global market sentiment was positive this week. All major equity indices are going up: US equities rallied to new record highs and European markets are back to pre-Brexit level.
China’s data took the center stage this week with the July activity data broadly disappointing, all below expectations:
- Industrial production growth slowed and came in at 6% year on year, down from 6.2% in June,
- Domestic demand and investment were weak as well,
- Trade data (in USD) was weaker than expected.
China’s activity remained subdued. Growth momentum weakened slightly as the economy entered Q3. However, there is no surprise that China growth is slowing, it's more a matter of how quickly. That being said, the monetary policy is likely to remain accommodative for the coming months.In the US, all eyes were on consumers:
- Retail sales were unchanged vs +0.4% expected. Disappointing investors clearly
- Moreover, producer prices drop -0.4%, that is to say the biggest drop in a year.
After these weak data, core yields drop sharply and dollar weakened against all of its G-10 peers as there is no sign of inflationary pressure at this stage. Markets have been clearly disappointed. Odds of a 2016 Fed rate hike drop to 40 percent.
Our positioning remained the same this week. We just began to take some profits on European equities.
La Française’s Essentiel Markets brings you an insightful analysis of the latest financial news by François Rimeu, Head of Total Return at La Française Asset Management.