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Fitch has affirmed China’s rating at ‘A+’ with a stable outlook

  
Analysis, Economy

The agency has a very modest outlook for 2020 GDP for the country, forecasting real GDP at +2.7% this year

  • Says the economy is making a remarkable recovery
Chinese authorities are in a position to enforce quite draconian lock down measures if needed, which does help stem the spread of the infection when needed. Not a step that can be taken in many other countries to the same extent.

UK July flash services PMI 56.6 vs 51.5 expected

  
Analysis, Economy

Latest data released by Markit/CIPS – 24 July 2020

  • Prior 47.7
  • Manufacturing PMI 53.6 vs 52.0 expected
  • Prior 50.1
  • Composite PMI 57.1 vs 51.7 expected
  • Prior 47.7

The easing of lockdown measures has spurred a solid upturn in UK business activity, but once again this just reaffirms that conditions here are much better than they were compared to the May to June period. Still, it is a positive takeaway nonetheless.

The bright side is that the recovery is headed in the right direction, but it remains to be seen how much of that can be sustained especially with the government’s furlough program set to end later in the year in October.
That will provide the real test of the UK’s economy mettle and provide a better reflection of the strength of this recovery in general.
Cable is inching slightly higher on the report, moving from 1.2730 to 1.2744 but I don’t think there is much to really chew at here. Markit notes that:

“The UK economy started the third quarter on a strong footing as business continued to reopen doors after the COVID-19 lockdown. The surge in business activity in July will fuel expectations that the economy will return to growth in the third quarter after having suffered the sharpest contraction in modern history during the second quarter.

“However, while the recession looks to have been brief, the scars are likely to be deep. Even with the July rebound there’s a long way to go before the output lost to the pandemic is regained and, while businesses grew more optimistic about the year ahead, a V-shaped recovery is by no means assured.

“New orders showed only a relatively small rise in July, indicating that demand remains worryingly low at many firms. Hence July saw yet another sharp cut to employment levels as increasing numbers of companies scaled back their operating capacity. Many households are therefore likely to remain cautious with respect to spending with the job market deteriorating.

“Furthermore, not only do many consumer-facing businesses remain especially hard-hit by the pandemic and ongoing social distancing, we remain very concerned about the extent to which the recovery could be smothered by a lack of postBrexit trade deals.

“July’s PMI represents a step in the right direction, but there is a mountain still to climb before a sustainable recovery is in sight.”

Eurozone July flash services PMI 55.1 vs 51.0 expected

  
Analysis, Economy

Latest data released by Markit – 24 July 2020

  • Prior 48.3
  • Manufacturing PMI 51.1 vs 50.1 expected
  • Prior 47.4
  • Composite PMI 54.8 vs 51.1 expected
  • Prior 48.5

Solid beats across the board as preempted by the French and German readings earlier. Both the services and composite prints are their highest in over 25 months. Even the manufacturing beat is the highest in 19 months.

This just reaffirms that euro area business activity returns to growth in July as lockdown restrictions are eased and conditions are faring better relative to May to June.
But as mentioned earlier, the real challenge will be to see how this recovery can stand as labour market conditions start to move towards standing on its own two feet later this year.

Markit notes that:

“Companies across the euro area reported an encouraging start to the third quarter, with output growing at the fastest rate for just over two years in July as lockdowns continued to ease and economies reopened. Demand also showed signs of reviving, helping curb the pace of job losses.

“The data add to signs that the economy should see a strong rebound after the unprecedented collapse in the second quarter.

“However, while the survey’s output measures hint at an initial v-shaped recovery, other indicators such as backlogs of work and employment warn of downside risks to the outlook.

“The concern is that the recovery could falter after this initial revival. Firms continue to reduce headcounts to a worrying degree, with many worried that underlying demand is insufficient to sustain the recent improvement in output. Demand needs to continue to recover in coming months, but the fear is that increased unemployment and damaged balance sheets, plus the need for ongoing social distancing, are likely to hamper the recovery.”

China president Xi Jinping: Chinese economic recovery leads the world

  
Analysis, Economy
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Comments by China president Xi Jinping

Xi Jinping
  • Will strive to make up economic losses caused by coronavirus pandemic
  • Will strive to achieve good results for economic growth this year
  • Will make fiscal policy more proactive, prudent monetary policy more flexible
  • Will continue to cut taxes and fees
There isn’t much of anything new here from Xi, but this just reaffirms that China will continue to maintain the current set of policies and keep bolstering the economy for many more months as they deal with the fallout from the virus outbreak earlier in the year.

Japan trade balance for June Y -268.8bn (expected Y -11.9bn)

  
Analysis, Economy
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Japanese data, exports worse than expected, imports fall lower than expected leading to a blow out on the deficit for the month

Japan trade balance for June Y -268.8bn

  • expected Y -11.9bn, prior Y -838.2bn

Trade balance adjusted Y -423.9bn

  • expected Y -331.1bn, prior Y -601.0bn

Exports -26.2% y/y

  • expected -24.7% y/y, prior -28.3%

Imports -14.4% y/y

  • expected -17.6% y/y, prior -26.2%
Japan is an export powerhouse, this miss on exports is suggestive of a global economy in even worse shape than may have been thought.

Eurozone May construction output +27.9% vs -14.6% m/m prior

  
Analysis, Economy

Latest data released by Eurostat – 17 July 2020

  • Prior -14.6%; revised to -18.3%
  • Construction output -11.9% y/y
  • Prior -28.4%; revised to -31.0%
Construction activity rebounded in May amid the easing of lockdown restrictions in the region but are still largely subdued as compared to conditions seen a year ago. The revised readings also saw the April drop being much steeper than initially reported last month.

Economists see Eurozone GDP contracting by 8.3% this year – ECB survey

  
Analysis, Economy

ECB releases the results of its latest survey of professional forecasters

ECB
  • 2020 GDP growth forecast -8.3% (previously -5.5%)
  • 2021 GDP growth forecast +5.7% (previously +4.3%)
  • 2022 GDP growth forecast +2.4% (previously +1.7%)
  • 2020 inflation forecast +0.4% (unchanged)
  • 2021 inflation forecast +1.0% (previously +1.2%)
  • 2022 inflation forecast +1.3% (previously +1.4%)
The previous survey in May can be found here. The revised economic contraction of 8.3% is slightly less deep than the ECB’s own projection of a 8.7% drop in the euro area economy this year, with a stronger rebound expected for 2021 and 2022.
But again, when it comes to forecasts and projections, take things with a pinch of salt. The virus situation is constantly developing and as such, views towards the global economy will also change depending on how things progress in the coming months.
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