Weekly review of global markets
UK retail sales improve in June
The latest Distributive Trades Survey of the Confederation of British Industry (CBI) found that UK’s retailers experienced year-on-year growth in both sales and orders in June. A total of 58% of respondents said that sales volumes were higher than June 2011, with just 17% reporting a decline. The net balance of +42% was stronger than had been expected: it was also the most positive reading since December 2010 when the corresponding figure was +56%. Judith McKenna, Chair of the CBI Distributive Trades Panel noted that: ‘the Jubilee provided a much needed boost to our high streets, with many families and communities making the most of the Bank Holiday and coming together to celebrate. However, it is notable that sales were still considered to be below par for the time of year. Weak consumer confidence and uncertainty over the economic outlook are still putting a brake on consumer spending across the whole retail sector.’
The results of Markit’s Household Finance Index (HFI), which predicts the behaviour of UK consumers in the UK, suggested that household finances are now deteriorating at a slower pace than previously. The June index reading of 37.0 is below both the long-term average and the level (50.0) which indicates a neutral situation, but respondents were more positive than they have been since April 2010. Respondents’ expectations of inflation fell for the third month in a row.
The Office for National Statistics (ONS) published its third estimate of the UK economic growth in the first quarter of 2012. The ONS believes that GDP contracted by 0.3%, following a 0.4% decline in the final quarter of 2011.
Chicago Fed index indicates slowing growth in the US economy
The Chicago Fed National Activity Index (CFNAI) fell in May. Of the four broad categories that make up the index (production and income; employment; personal consumption and housing; and sales, orders and inventories), three deteriorated relative to April. The implication is that the US economy has shifted from growing at a faster-than-long-term-average rate to growing marginally more slowly. Meanwhile, The Federal Reserve Bank of Dallas said that its Texas Manufacturing Outlook Survey found that manufacturing output in that state rose to a 15-month high in June. However, the Texas manufacturers’ expectations about future business conditions deteriorated slightly.
The US Census Bureau reported that new orders for manufactured durable goods in May rose by US$2.3bn, or 1.1%, to US$217.2bn. Excluding transportation equipment, new orders rose by 0.4%. Excluding defence equipment, new orders rose by 0.7%. Shipments, inventories and non-defence new orders all increased during May.
State Street Global Markets noted that its Global Investor Confidence Index (ICI) rose by 7.0 points from 86.5 in May to 93.5, the highest level so far this year, in June. The index measures investor risk appetite by analysing actual buying and selling patterns of institutional investors and a reading of 100.0 is neutral, indicating investors are neither increasing nor decreasing their allocations to riskier assets. During the month, the risk appetite of both North American and European investors rose. The latter have, by a small margin, become net buyers of equities. Asian investors’ appetite for risk, by contrast, remained largely unchanged during the month.
Germany expects inflation to fall to lowest level since December 2010
Germany’s Federal Statistics Office (Destatis) said that it is looking for Consumer Price Index (CPI) inflation to come in at 1.7% for the 12 months to the end of June. If this projection is accurate, inflation in Germany will have fallen to the lowest level since December 2010 (when it was also 1.7%). Destatis believes that the CPI fell by 0.1% in the Month of May, mainly due to a fall in energy prices.
Japan set to increase consumption tax
The lower house of Japan’s parliament passed legislation to increase the rate of consumption tax in Japan from the current level of 5% to 8%, and then to 10% in 2015. While this represents a small step towards a reduction in Japan’s budget deficit, there are concerns that the tax will have an overall negative impact on economic activity. Indeed, the bill has a stipulation that the higher tax rate will only take effect if Japan’s overall economic situation has improved.
The Ministry of Economy, Trade and Industry (METI) reported that sales in the overseas subsidiaries of Japanese companies rose by 4.6% to US$259.4bn in the year to the end of March. Growth was driven by a rise in sales to Japan, which increased by 7.5%. However, the overseas subsidiaries are also benefiting from rising demand locally, with such sales increasing by 4.5% to US$184.2bn.
METI noted separately that overall commercial sales in Japan amounted to ¥40,297bn in May, or 2.3% more than May 2011. The growth was driven by a 3.6% rise in retail sales.
Emerging market news
The Economic Development Board (EDB) of Singapore reported that the total manufacturing output in May was 6.6% higher than it had been in the same month of 2011, driven largely by a rise in bio-medical manufacturing. Production, however, contracted in electronics, chemical and precision engineering.
During the week, the National Bank of Romania (NBR) and Magyar Nemzeti Bank (the central bank of Hungary) opted to keep interest rates unchanged. In Romania, the board of the NBR noted inflation had fallen to a record low of 1.79% in May due to weak domestic demand. Meanwhile, the Hungarian central bank does not expect the domestic economy to expand until 2013 due to a combination of falling demand, high unemployment and declining incomes. However, inflation could remain elevated due to the recent rise in VAT and excise duties, as well as other measures announced in Hungary’s Structural Reform Program.
Elsewhere in Eastern Europe, it was reported this week that year-on-year retail sales in Poland rose from 5.5% in April to 7.7% in May. The acceleration was partly due to the fact that the April numbers had been negatively impacted by the timing of Easter and the build-up to the UEFA EURO 2012 competition.
Company news
Muhtar Kent, the Chief Executive Officer of Coca-Cola Co., announced that the company plans to spend US$5bn on developing plants and distribution networks in India over the next eight years. Globally, the average person consumes 92 of the company’s products annually. In China, for example, the equivalent figure is around 40, although this figure in India currently stands at just 12.
IKEA, the Swedish-based furniture maker and retailer, also plans to increase its presence in the Indian market by investing €1.5bn in 25 new stores.
In Turkey, executives of Turkiye Garanti Bankasi, one of the country’s largest commercial banks, confirmed that it is looking forward to strong growth. Garanti expects that credit card transactions in Turkey will grow by 18-19% over the course of 2012. The bank is looking for its loans to small and medium-sized enterprises to rise by 25%. In the year to the end of March, Garanti’s total lending rose by 18% to 83.3bn liras (US$46bn).
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