China’s services sector saw a rebound in July, with employment growing at its fastest rate in nearly a year, according to a survey released Monday by Caixin. The Caixin China General Services Business Activity Index offers an independent overview of conditions in industries like retail and tourism. It rose to 52.1 in July in comparison to 51.2 in June, recovering from an eight-month low but expanding for the 19th consecutive month.
Retail sales data from the Eurozone revealed a dip in consumer spending for June, with a 0.3% decline following a modest 0.1% rise in May. Notably, purchases of food, drinks, and tobacco dropped by 0.7%, while fuel sales in specialised shops fell by 0.5%. The data aligns with the European Central Bank’s recent forecast of subdued growth for 2024, indicating that the anticipated consumer-led recovery in the Eurozone is still lagging and likely proving a key discussion point for the central bank’s policymakers.
While sales data for Eurozone underwhelmed, the UK presented a more optimistic scenario. July retail sales in the UK rose by 0.5% year-on-year, rebounding from a 0.2% decline on year in June 2024. The British Retail Consortium reported that shoppers, spurred by the delayed summer weather, prioritised spending on holidays and entertainment, at the expense of other big ticket items. While the uptick showcases a return to growth for the sector, it was relatively minimal and unlikely to shape the Bank of England’s next interest rate decision.
In something the media are now referring to as ‘turnaround Tuesday’, the global market sell-off that characterised the end of the previous trading week and the beginning of this one eased to a stop. The momentary trader panic was attributed to a few things, one being the latest release of underwhelming economic data for the US leading to over-egged fears that the Fed are now behind the curve with rate cuts. The second was the reversal of carry trades. Investors reacted to the yen strengthening against the dollar on Monday after having purchased the currency at low prices to fund investments of higher-yielding assets. The sell-off then became sentiment driven and, in an extraordinary example of financial psychology in practice, a self-fulfilling prophecy, as the market started to relinquish investments believing that the fact others had meant there was a reason to.
At the close of play on Tuesday, however, the Nikkei enjoyed its best day in percentage terms since 2008, while other major indices enjoyed more marginal, but nevertheless positive, gains. The FTSE 100, for example, ended Tuesday up by 0.23%, while the S&P 500 was up 1.04%. In Japan, a Bank of Japan deputy governor also stated on Wednesday that rates will not be increased when markets are unstable, suggesting that there is a decreased chance of a near-term hike in borrowing costs.
In reality, short-term volatility when investors incorrectly predict central bank moves is not new and the dip allowed retail and institutional investors to seize the opportunity to buy and get in on the action. As mentioned in our Market Summary on Monday, we can expect some short-term noise in markets going into August as trading volumes are lower
during the summer and the Fed is not scheduled to meet. We do not, however, expect this to persevere.
Finally, in Ireland, the unemployment rate for the month of July came in at 4.7% in contrast to 4.5% in June. July’s reading marks a two and a half year high and has steadily increased for five consecutive months from 4.1% in February.
Still to come this week we have US initial jobless claims, China’s CPI and PPI.
Nicola Tune, Portfolio Specialist
