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Please see below “Daily Investment Bulletin” received from Brooks Macdonald yesterday afternoon, which provides market analysis in relation to economic developments in the US.

What has happened

US equities snapped a 5-day rally in local US$ currency terms on Tuesday as weaker than expected US retail sales data for July sapped investor confidence. US Federal Reserve (Fed) Chair Powell held a virtual townhall meeting with US teachers and students on Tuesday; while he did not touch on monetary policy, Powell said that the COVID pandemic is ‘still casting a shadow on economic activity…It is still very much with us. We can’t declare victory yet on that.’ US 10-year treasury yields were broadly unchanged at 1.26%. Meanwhile, Asian markets this morning were on course to snap a four-day losing streak, with Japan, China and Hong Kong posting gains. Following Asia’s lead, US equity futures are currently pointing modestly higher this morning. On the pandemic, New Zealand, following its ‘elimination policy’ zero-tolerance of COVID cases, announced a 3-day nationwide lockdown on Tuesday, following the discovery of its first community case since February. Defending the decision, New Zealand PM Ardern said ‘Delta has been a game-changer, we’re responding to that…The best thing we can do to get out of this as quickly as we can is to go hard.’

US Retail Sales disappoints

US Retail Sales data for July were published on Tuesday, missing market expectations. US Retail Sales fell -1.1% month on month, whereas the market had been expecting a smaller fall of -0.3%. The prior month, June did however see a small positive revision from 0.6% to 0.7%. Within the data, autos was a drag, as the number for retail sales excluding autos registered a much smaller fall of -0.4%. Regarding the weakness in autos sales specifically, this would seem to fit with the drop in month on month auto price pressures that we saw from the July Consumer Price Index (CPI) inflation data from last week. Sales at ‘food services and drinking places’ (e.g. restaurants and bars), the only services-spending category in the retail report, rose 1.7% month on month, but this was the smallest advance in 5 months.

Fed July minutes are due later on Wednesday

Investors will be eagerly awaiting the release of minutes from the Fed’s July meeting later on Wednesday for any clues around the US central bank’s possible timing and contours of any asset purchase tapering. In recent weeks, Fed members have been much more openly debating this subject, so the minutes might reveal areas where the collective opinion might be shifting.

What does Brooks Macdonald think

The US economy is heavily reliant on the health of the US consumer. After all, according to estimates from the St. Louis Fed, personal consumption expenditures was 69% of US GDP in Q2 this year. That said, we shouldn’t overstate the weakness in this retail sales report; part of the drop is likely just reflecting an expected shift in spending away from goods, and towards services (much of which is not represented in the retail sales data), as the broader economy continues to re-open. Nonetheless, in the short-term this is still likely to push back on the hopes of those looking for a post-pandemic consumer-driven sustained reflationary impulse.

Index 1 Day1 Week1 MonthYTD
MSCI AC World GBP 0.1%0.4%1.9%13.5%
MSCI UK All Cap GBP 0.3%0.6%3.4%15.2%
MSCI USA GBP 0.2%0.9%3.2%18.1%
MSCI EMU GBP 0.1%0.8%3.8%14.5%
MSCI AC Asia ex Japan GBP -0.6%-3.1%-6.9%-3.9%
MSCI Japan GBP 0.0%0.7%0.1%0.7%
MSCI Emerging Markets GBP -0.4%-2.6%-5.7%-1.8%
Barclays Sterling Gilts GBP 0.1%0.1%1.9%-2.6%
Barclays Sterling Corps GBP 0.1%0.1%1.1%-0.8%
WTI Oil GBP -0.2%-1.7%-6.9%36.5%
Dollar per Sterling -0.8%-0.7%-0.2%0.5%
Euro per Sterling -0.2%-0.7%0.7%4.9%
MSCI PIMFA Income 0.1%0.3%2.0%8.4%
MSCI PIMFA Balanced 0.1%0.4%2.1%9.7%
MSCI PIMFA Growth 0.1%0.5%2.3%11.8%

Source: Bloomberg as at 18/08/2021. TR denotes Net Total Return

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19th August 2021