China US Aus Retail Sales Improve

Markets were buoyed by the clear and hopefully decisive improvement in China-USA relations yesterday.

With two working groups now planned to improve economic relations between the two countries. The first meeting planned to take place as soon as today. One group will focus on commercial interests and be driven by private business. The second will deal with respective export policies.

This sounds more like the kind of pragmatic and decisive break-through that is required. The proof will be in the pudding and only time will tell, but markets are correct to respond favourably to these developments.

The global economy most certainly needs some relief from the return to protectionist policies that has been occurring.

There was further worrying news out of Europe however, with New Lending growth barely moving the needle at just 1.3%. Would you believe, this is akin to levels seen in the Sovereign Debt Crisis. Which was a crisis of tectonic plate shifting proportions.

EU New Lending

Lending has been nose diving constantly for the past year and there is no sign of a turnaround in this pattern. This is what happens when consumers and businesses alike are depressed and even scared. It cannot be emphasised enough that a major war on your doorstep is unsettling for everyone and has serious economic impacts.

Meanwhile, in the USA the Manufacturing Recession continues apace. The Federal Reserve Bank of Dallas’ general business activity index for Manufacturing in Texas remained deep in Covid-lockdown levels at -17.2.

Texas Manufacturing Activity

Someone asked me this week, where is the evidence that manufacturing is weak? My reply, it is everywhere. In every survey. That many people are completely unaware just goes to show how much funds industry spin to the positive is taking place generally in economic discussion these days.

The facts are clear, indeed over-whelming that US manufacturing is on its knees and with no bounce to speak of.

It had been expected that US stocks would rally Monday, and potentially in to Tuesday. The rally looks better, more sustainable than the previous small bounces on the way down over recent weeks. It does need to kick on a bit higher from current levels to really turn the tide.

Australian Retail Sales

Australian Retail Sales were up an impressive 0.5% in July.

Impressive, if you forget they were down a whopping 0.8% last month.

Unable to recover the previous months collapse, at least some stabilisation of the bleak retail sector was achieved.

Over the past six months, Retail Sales have had average growth of just 0.1%. Department store sales remain well down. Restaurants and cafes showed small growth in the past month, but this looks to be less than the price hikes seen. It is likely restaurants and cafes are compensating for a drop in volume of customers with ratcheted higher prices.

The numbers are not as positive as the headline suggests. Still down 0.3% over the past two months. The sector remains in crisis management. Equity markets probably over-reacted to the upside.

Overall, given the China-USA developments it was a good news days. We should remain well aware however, that the current run of economic data among the major economies remains concerning to say the least.

Clifford BennettACY Securities Chief Economist

The view expressed within this document are solely that of Clifford Bennett’s and do not represent the views of ACY Securities.

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