News that China plans to broaden a ban on the use of iPhones in government agencies put pressure on Apple shares and triggered a slide in equity futures on a light day of economic data. Fixed income yields retreated after disapointing European data, while the dollar reached a new 6-month high.
Soft Chinese trade leaves currency on the ropes
China’s exports extended a slump that left them 8.8% lower in August than a year earlier while imports were down 7.3%. The contraction in trade was less severe than expected, but the nominal trade surplus for the year to date of $553bn was just .3% higher than the same period last year – the slowest growth rate since the pandemic.
Softening economic data have put pressure on the Chinese currency since the start of this year, and the Renminbi slid to a sixteen-year low against the dollar yesterday, trading just above the central bank’s lower fx limit at 7.33 CNY/USD. It remains under pressure this morning, with authorities pushing funding rates higher on offshore yuan to make shorting more expensive.
Eurozone gloom deepens
Eurozone second quarter growth was revised lower after originally being reported at .3% QoQ following a downward revision to the negative contribution from net exports, leaving GDP in the quarter just .1% higher than Q1. Domestic demand was weak, with household consumption showing zero growth for a second consecutive quarter, while inventory accumulation added .4 of a percentage point to growth which was offset by the decline in exports. Small contributions of a tenth of a percent each from gross capital formation and government spending brought the quarter’s output higher by an unrounded .13%.
Across the big four economies, Germany’s GDP was flat on the quarter, but Italy let the side down with a contraction of .4%, while Spain and France grew by .4% and .5% respectively.
German industrial production fell for a third consecutive month in July, extending a disappointing run of data for Europe’s largest economy that makes a third quarter contraction increasingly likely. Output declined .8% against estimates for a .4% decline, following data a day earlier that showed demand for Germany’s industrial products has yet to exit a trough.
UK data point to near peak in rates
UK economic data supported BoE Governor Bailey’s claim given in testimony to parliament a day earlier that interest rates are probably “near the top of the cycle”, as the yield on the 2-year gilt sank 10bps to 5.14% and sterling closed below $1.25 for the first time in 3 months.
The Halifax reported the steepest year over year slide in UK house prices since the GFC in August, with its home price index 4.6% lower than a year earlier, confirming the trend reported by the Nationwide last week of a deepening slump. Separate data from the BoE’s August Decision Maker Panel – a survey of UK CFOs - showed businesses expect inflation and wage growth to slow over the next 12 months, with CPI inflation expected to fall to 4.8%.
US labour still in short supply
The US labour market continues to send mixed messages, where despite evidence of cooling job demand, companies are still clinging tightly to their existing workers. Initial jobless claims last week sank to the lowest level since February, undershooting estimates with a 13K plunge to 216K while continuing claims from the week ended Aug 26th fell 60K to match the 6-month low of 1.679m from July. The BLS is more than capable of making the correct seasonal adjustments for Labor Day and although Hurricane Idalia – which tore a trail of destruction through Florida and Georgia – may have prevented some from filing claims, unadjusted initial claims in those two states were only 1,016 lower than the previous week.
US nonfarm productivity growth was revised down to 3.5% in the second quarter from 3.7% while unit labour costs grew at a 2.2% annualised rate - much faster than the initial 1.6% estimate. The changes still left productivity growth in the quarter the strongest outside the pandemic since 2017 and follow the .3% downward adjustment to last week’s second estimate of Q2 GDP growth.
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Today’s macro agenda
Japan labour cash earnings July
France industrial production July