WORLD ECONOMIES CHARTED
Global economic growth picked up very slightly for the first time in four months in July, according to worldwide PMI survey data. The JPMorgan Global PMI, compiled by Markit, rose from 53.1 in June to 53.4 in July, to signal a rate of global GDP growth of just over 2% per annum.
Global economic growth
US PMI data point to 2.1% annualised GDP growth at start of third quarter
The seasonally adjusted Markit Composite PMI™ registered 55.7 in July, above the earlier ‘flash’ reading of 55.2 and up from June’s five-month low of 54.6. Faster growth in the service sector accompanied a similar upturn in manufacturing, leaving the economy on course to see a rate of expansion similar to the solid pace achieved in the second quarter.
The survey data had accurately anticipated the improvement in the pace of economic growth in the second quarter, when growth rebounded to 2.3% after a poor start to the year.
What’s more, upwards revisions to the official figures have also brought the historical data more into line with the business surveys. Importantly, like the PMI, the official data now indicate that the economy expanded in the first quarter rather than suffered a slide back into contraction.
The third quarter of 2012 was also notable in that growth has been revised down from 2.5% to just 0.5%, in line with the 0.6% increase signalled by the PMI at the time for that quarter.
The upwards revisions to the historical GDP have increased the correlation between PMI and GDP data to 83%. The July data are currently running at a level consistent with 2.1% annualised growth of GDP.
Economic growth & the PMI
GDP growth of 2.1% in Q3 is well below the current consensus. The quarter is off to a slow start. Evercore ISI company surveys are down sharply recently and “are on track to be lower than their 2Q average.” Ed Hyman now sees Q3 GDP at +2.5% from +3.0%. BTW, over the past six years, US total GDP has increased at a +2.1% a.r.
FACTS ON CHINA
GM and its China joint ventures sold 229,175 vehicles in July, 4 percent fewer than a year earlier, according to a statement on its website Thursday. (…)
The Detroit-based carmaker cut its outlook for China’s industrywide growth for this year to a low single-digit range last month, from the 6 percent to 8 percent range it projected earlier. The automaker also said it expects a more volatile market in China as growth moderates and stiffer competition to increase the pressure to cut prices. (…)
Eurozone retail PMI surges to highest since January 2011
Growth of retail sales in the euro area accelerated at the start of the third quarter, reflecting upturns in each of the bloc’s big-three nations, latest Eurozone Retail PMI® data showed. The increase in sales was the greatest since January 2011, and the second-fastest since early-2007.
The headline Markit Eurozone Retail PMI – which tracks month-on-month changes in like-for-like retail sales across the bloc’s biggest three economies combined – climbed from June’s 50.4 to 54.2 in July, and has now signalled growth in sales for three consecutive months. Sales were also up in comparison to July 2014, with the annual rate of growth the fastest recorded since May 2008.
Germany led retail sales growth in July, recording its sharpest monthly increase in over eight-and-a-half years. French retailers also saw a notable upturn in performance, registering a solid rise in sales in July – the fastest since October 2011 – on the back of 13 consecutive months of contraction. Italy’s marginal rise in sales was nevertheless its only since early-2011.
This July Retail PMI report will alleviate concerns from yesterday’s Eurostat weak June retail sales report, particularly in Germany.
Oil’s Plunge Responsible for Earnings Contraction As earnings season nears an end, oil’s impact is a sore spot investors can’t ignore.
Through Wednesday’s close, 84% of S&P 500 companies have reported second-quarter results and the blended profit rate shows a contraction of 1.2%, according to data compiled by FactSet. Excluding energy, earnings would show expansion of 5.6%.
For revenues, it’s a similar story. Stripping out energy companies, S&P 500 revenues would be on pace to grow 1.7% versus their current rate that is a decline of 3.3%, per FactSet.
Via Bloomberg:
According to David Kostin of Goldman Sachs, only 36 per cent of cyclical stocks beat their earnings estimates this quarter, against 80 per cent of defensives. And so, since the beginning of this quarter, cyclicals have lagged behind by some three percentage points.
Hmmm…I see nothing close to a 36% beat rate in any sector. Based on RBC Capital’s tally: Cyclicals ex-Financials: 71% including Industrials at 77% and Materials at 63%. These numbers are very close to S&P’s numbers as of last Friday.
EARNINGS WATCH
- 428 companies (88.3% of the S&P 500’s market cap) have reported. Earnings are beating by 5.3% while revenues have positively surprised by 0.5%.
- The beat rate is 71% (72% Tuesday). Ex-Financials: 74%.
- Expectations are for revenue, earnings, and EPS of -3.4%, +0.4%, and +1.9% (1.6%). EPS growth is on pace for 2.5% (2.4%), assuming the current 5.3% beat rate for the remainder of the season. This would be 7.5% (7.4%)on a trend basis (ex-Energy and the big-5 banks).
Saudi Arabia plans $27bn in bond issues
Saudi Arabia is returning to the bond market with a plan to raise $27bn by the end of the year, in the starkest sign yet of the strain lower oil prices are putting on the finances of the world’s largest oil exporter.
Bankers say the kingdom’s central bank has been sounding out demand for an issuance of about SR20bn ($5.3bn) a month in bonds — in tranches of five, seven and 10 years — for the rest of the year. (…)
But the decision to ride out a sustained period of lower prices has put a huge strain on the finances of major oil exporters, including Saudi Arabia which requires an oil price of $105 a barrel to balance its budget.
The kingdom has drained $65bn of its fiscal reserves to maintain government spending since the oil price plunge began. Sama currently has $672bn in foreign reserves, down from their peak of $737bn in August 2014.
The plan to resort to capital markets, if confirmed, demonstrates the priority Riyadh is placing on maintaining government spending, despite the pressure cheap oil is putting on its budget.
The monthly bond issuance plan would only cover part of the deficit, which economists estimate will reach SR400bn this year amid falling revenues and continuing high expenditure on big infrastructure projects, public sector wages and the continuing war in Yemen. (…)
Chinese Retail Investors Flee Plunging Markets More than 20 million pulled out in July, as Shanghai Composite Index took biggest monthly dive in six year
The number of retail investors holding stocks in their accounts slid to 51 million at the end of July from 75 million at the end of June, according to China Securities Depository & Clearing Corp., the government agency that tracks accounts. As they ran, the Shanghai Composite Index suffered its biggest monthly decline in six years, falling 14% to finish 29% below its June 12 peak.
Unlike in the U.S., where institutions dominate stock trading, retail investors are king in China, owning around 80% of listed stocks’ tradable shares, according to investment bank CICC. (…)
The Chinese are big savers, setting aside as much as 50% of their disposable income, according to the World Bank. The government had hoped to channel some of that from banks to the capital markets, but for now that hope looks rather forlorn.
