Global equity markets were hammered today, as renewed concerns about growth pushed the markets down. The S&P 500 Index was under pressure from the outset and settled down more than 30 points to close at 1090.The renewed growth concerns, the sell-off in equities and the Fed-inspired rally in US Treasuries has triggered a global bond market rally. The 10-year JGB yield is just below 1% and the 30-year yield is at new 7-year lows near 1.625%. Benchmark 10-year yields are mostly off 5-7 basis points in Europe, with the gilts outperforming and the 10-year yield is off 8 bp. The rally in US Treasuries is also continuing. The Federal Reserve will provide more details of its purchases after the market closes today, but it has already indicated it will focus on the 2-10 year part of the curve, so the longer end is expected to under-perform.
In this macro context, the US trade figures may take on greater significance than usual. It is the last piece of significant economy data that economists will use to fine tune expected revisions to Q2 preliminary GDP estimate of 2.4%. Currently, given the recent inventory and consumption data, Q2 GDP looks closer to 1.5%. With today’s worse than expected trade figures, to around 1.7%. Today’s data on trade suggest the revised figure may be closer to 1%, or even as low as 0.3%. Note that net exports took a little more than 2.75 percentage points off Q2 GDP, after only shaving Q1 about a third of a percent. On the other hand, one consideration that may be skewing US imports (and Chinese exports) is the end of some export subsidy for Chinese companies in the middle of July. There may have been some effort to “beat” the deadline and China-based companies may have frontloaded their exports.
The string of poor economic data continued today. The 1.6% rise in machinery orders in Japan was less than a third of the gain the market expected after a 9.1% decline in May. These orders are now contracting on a year-over-year basis. China’s data was largely in line with expectations showing a modest easing in industrial production, retail sales and urban fixed investment. The pace of increase in producer prices eased (4.8% from 6.4%), but consumer prices accelerated (3.3% from 2.9%). The UK has been hit with a barrage of soft report, from the collapse in the Nationwide consumer confidence measure (-7 from 49), only a 3.8k decline in the claimant count for unemployment (vs consensus of -17k) and unfavorably revised the June figure (to -15.9k from -20.8k) and culminating in the quarterly inflation report that saw the BOE revise down growth and kept the door open to additional QE if necessary.