As China steps up government intervention in its economy
In the US last week, reported retail sales fell 1.1% in July, this was worse than the expected drop of 0.3%; reflecting a shift in spending from goods to services, with cars, auto parts, clothing and online shopping feeling the pinch. Much of this decline in property spending was shifted to the hotel sector.
Bar and restaurant sales increased by +38.4% year-on-year. Some commentators expect this transition to continue, limiting growth in tangible consumer product categories; but not necessarily impacting the broader prospects for economic growth in the United States. Inflation expectations also remain subdued, with the ongoing Philadelphia Fed survey now indicating that the consensus is for inflation to hold at +2.4% per year for the next five years.
US industrial production rose +0.9% in July, beating market expectations by +0.5%, while manufacturing production increased by +1.4%. These latest data for the US point to a stabilization of the economic recovery, with a predictable turnaround in consumer spending, subdued inflation expectations and strong industrial production supporting this view.
Chinese retail sales increased +8.5% in July yoy, below expectations of +11.5%; however, they continue to have a healthy growth rate. The urban unemployment rate rose to 5.1%, a three-month high, and industrial production rose +6.4% yoy, missing expectations of +7.8%; but, again, a healthy absolute run rate.
The floods in the country at the beginning of the summer and the increase in restrictions on activity in several Asian countries, due to the spread of the Delta variant, are probably to blame for the weaker than expected activity growth rates.
Also in the news from China was the latest phase of regulatory announcements for the economy from President Xi. In the latest statements, he stressed the need to support "common prosperity" and reduce wealth inequality in China. This manifests as surprise announcements of new regulations for major sectors of the Chinese economy, with the education and technology sectors leading the way.
These latest moves of government energy into the private sector have spooked markets, with exposed sectors seeing sharp declines in share prices. This story is far from over and the Dominion investment team will be following it closely in the coming months from a risk management and investment opportunity perspective.
Sources: Bloomberg, Yahoo Finance, Marketwatch, MSCI. Copyright © 2022 Dominion Capital Strategies, All rights reserved