Global Wrap by KT-Zmico

Key releases to watch:

  • Tuesday: U.S. Empire State manufacturing (Aug.), import-price index(July), NAHB housing market index (Aug.), business inventories (June) and Treasury international capital flows (June), Brazil retail sales (June), Canada existing home sales (July), Indonesia trade(July), Russia industrial production (July), U.K.inflation (July), Germany GDP (2Q), Purchases at U.S. retailers probably improved in July as motor vehicle sales edged up, a sign of moderate household spending.
  • Wednesday: Australia wages (2Q), South Africa retail sales (June), U.K. ILOunemployment rate (June), Italy GDP (2Q), euro-area GDP (2Q).U.S. housing starts probably climbed in July for a second month, a sign of rebounding home construction.
  • Thursday: Brazil economic activity index (June), Australia jobs data (July), Philippines GDP (2Q), Japan trade data (July), Russia retail sales (July), U.K. retail sales (July), France unemployment (2Q), euro-area inflation (July).U.S. industrial production probably increased in July, signaling steady progress among the nation’s manufacturers. The Japanese government will release trade data for July. Exports have grown robustly this year.
  • Friday: Canada CPI (July), Taiwan revised GDP (2Q), Malaysia GDP (2Q)

MACRO NEWS

Japan’s economy extends its winning streak

Well before the fear of “secular stagnation” became common across the developed world in the aftermath of the global financial crisis, Japan was unhappily showing the way. For almost two decades before the crisis, Japan recorded weak economic expansion and frequent deflation as it struggled to escape the aftermath of the 1980s property bubble. In reality, given its low to negative population growth, Japan’s economic performance was more impressive than it seemed. Still, the country experienced the dangers of deflation, and the need to use all tools of policy to boost growth, earlier than most. In particular, the Bank of Japan, which had already been experimenting on and off with near-zero interest rates and direct asset purchases for more than a decade, in 2013 announced a 2 per cent inflation target. It then expanded a QE programme and subsequently cut interest rates below zero to reach it. Scepticism abounded that such stimulus would work in an oligopolistic economy struggling to raise productivity and with a relatively old population. Yet Japan is currently proving those suspicions misplaced. On Monday it was revealed that its economy expanded by an annualised 4 per cent in the second quarter, and more importantly was on course for its longest growth streak this century. The composition of that growth was as reassuring as its rate. While Japan has traditionally been accused of relying on net exports for expansion, the quarterly change was driven by domestic demand and particularly consumption. The BoJ’s QE programme and negative interest rates did weaken the yen considerably after 2013, raising hackles among the likes of Donald Trump. But it is clear that Japanese monetary policy has worked powerfully in ways other than through the exchange rate. (FT)

Indian annual inflation rate ticks up in July

India’s inflation rate reversed a series of declines to come in ahead of analyst expectations in July, as a heavy fall in the price of pulses and beans was offset by rising prices in meat, fish and sugar products. Consumer prices rose 2.36 per cent year-on-year in July, according to the country’s statistics office, coming in higher than June’s figure of 1.46 per cent and beating estimates for a 2.05 per cent rise. The rise in prices comes just weeks after the country’s central bank cut interest rates in line with forecasts, in its first easing of monetary policy since last September. Food inflation, a vital measure of prices in a country where most the population lives below the poverty line, rose just 0.43 per cent, but this was almost exclusively due to a 25 per cent fall in the price of pulses and beans in July. Of the 11 other food categories listed by the statistics body, prices rose in nine of them by around 2-4 per cent. (FT)

CORPORATE NEWS

Berkshire ramps up bets on credit cards with Synchrony stake

Warren Buffett’s Berkshire Hathaway has ramped up its bet on the consumer finance sector with a new position in credit card company Synchrony Financial during the second quarter. In a regulatory filing detailing its US-listed stock holdings, Berkshire said it owned 17.46m shares in Synchrony as of June 30. The shares – the equivalent of a 2.2 per cent stake – are worth about $520.7m. Synchrony shares, down more than 18 per cent so far this year, jumped 4.5 per cent in after market trading. The Oracle of Omaha’s financial moves are closely followed by Wall Street. The foray into Synchrony could provide a much needed fillip to the credit card industry, which has been reporting rising write-downs as some Americans struggle to pay off their debts. Berkshire is already the biggest shareholder in American Express, with about a 17 per cent stake. Synchrony, a spin-off from General Electric, provides cards for retailers including Walmart, Amazon and Gap. Ironically, the June quarter also saw Berkshire exit the remainder of its 0.1 per cent – or 10.6m share – stake in GE. (FT)

China’s largest ecommerce group JD.com falls back into loss

JD.com, China’s largest ecommerce company by direct sales, dropped back into loss in the second quarter of this year, despite rapid growth in sales. The Nasdaq-listed company reported a net loss of Rmb287m ($42.3m) over the three months ending June 30. However, net revenues soared 44 per cent from the previous year to Rmb93.2bn, thanks to the spending power of China’s growing middle class. Annual active accounts increased 37 per cent to 258m in the year to June 30, and the average amount each user bought also rose. According to Steven Zhu, a Shanghai-based analyst at investment research company Pacific Epoch, JD “will be the key beneficiary of Chinese consumption growth”. “They’re eroding T-Mall’s [a rival site owned by Alibaba] market share, with higher user growth than T-Mall,” he added. At the start of this year, JD had its first profitable quarter since going public two years ago. Its market capitalisation has since soared to $66bn, at one point almost overtaking Baidu, China’s third-largest listed tech group, and causing analysts to speculate whether it would soon join China’s “tech trinity” of Baidu, Alibaba and Tencent. (FT)

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