Global Economic Outlook -Weekly Update 30/7/2014
Global markets look to take an upturn off the back of a better performing US economy and an earnings season that continues to beat forecasts.
Asian indexes reach near 6.5yr highs on good economic data out of China and improved news out of Japan. As China focuses on shoring ups its economy via large infrastructure programs Japan's small scale moves have yet to see the economy turn the corner. June saw industrial output fall 3.3%. This was mainly due to the sales tax increase from 5% to 8% that took place in April. A production fall this vast has not been seen since November 2011 and as domestic demand has fallen, so have retail sales. Many consumers and businesses rushed to make purchases before the April increase and have spent very little since. Retail sales dropped 0.6% on the same time on 2013 and as a result business inventories have seen excessive levels. It's not all bad news for Japan though, corporate earnings have seen a good season and have helped keep the Nikkei close to record highs.
European markets have seen some relative volatility this past few weeks and today they should open slightly lower as they react to the new sanction being imposed on Russia. The continued crisis in the Ukraine may not be affecting global markets but Europe may not be as insulated as it may think. After continued pressure by the US and UN, the EU has finally agreed to further more harsher sanction. Following on from President Obama's lead they will announce tomorrow a new list which is expected to include major banks, energy companies and several military contractors will be affected by the arms embargo now in place. Once announced, it is estimated that almost 30% of Moscow's banking sector will be targeted in some form of financial sanction which is expected to pull almost $100bn from the economy within the next few days. Russia however has implied it will not react to the sanction and that its economy is resilient to see this through.
The US markets continue to flirt with all time highs as earning season comes to a close. Almost 70% of businesses have beat expectations, well above the long term average of 63%. This, along with an expected announcement by the Federal Reserve that GDP Growth for the 2nd quarter of 2014 should have expanded by over 3% will no doubt buoy the markets even further. Data released today is forecast to show growth in consumer spending driven by domestic demand and employment data that will again see the unemployment rate stay at 6.1%, near full capacity according to the Fed.
Considering the growing political tensions in key parts of the globe, the markets continue to surprise and volatility appears to be a thing of the past. This week could see Europe return to the highs it saw a month ago and US markets break all time highs yet again.
Key Market Data as of 30/7/2014:
Dow: 16,912.11 (-0.42%) S&
FTSE: 6,807.75 (+0.29%) Dax: 9,653.63 (+0.58%)
Hang Seng: 24,853.67 (+0.87%) Nikkei 15646.23 (+0.18%)
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