Industrial outlook still sluggish...
- The German IFO survey results surprised to the downside in August, falling to a 7 year low of 94.3 (July: 95.8, consensus: 95.1). In the fifth straight month of falling sentiment, the survey emphasised the intensifying trade war between US and China and EU disruptions in the car-making sector weighing on business sentiment. The measure of climate in the service sector remained moderately positive, whilst the manufacturing sector climate reading fell from -4.3 to -6.1 and the trade climate reading sank into negative territory at -2.4. Construction was the most positive sector, remaining resilient at 21.4.
- The US durable goods survey reported a sluggish start to Q3, indicating that the global slowdown will likely persist into 2020. Headline orders were flattered by volatile nondefense orders, leaving the index +2.1% in July (consensus: +1.2%) – excluding transportation -0.4% over the month. Shipments, which make up a component of overall GDP, declined -1.1% over the month, offsetting the slight increase in June. Six out of the nine shipments categories showed declines – metals and nondefense aircraft were the biggest detractors – while electrical equipment and motor vehicle parts provided some offset.
- Final GDP numbers in Germany for Q2 showed a -0.1% contraction over the quarter, leaving expectations of forecast growth just +0.5% for the year. IFO survey results and other signals of deteriorating corporate sentiment will likely further depress investment spending, which has so far been resilient (gross investment +0.3%). Construction fell by 1.0% over the quarter, following a strong start to the year +2.5% in Q1.
But consumption activity still strong; equities firmer on the week
- The US consumer confidence survey index declined by less than expected in August, -0.7% to 135.1 (consensus: 129.0), reflecting the current divergence in elevated data and more conservative expectations. The labour differential was most encouraging, as the percentage of respondents reporting plentiful jobs increased over the month. The Richmond Fed manufacturing index increased in August to 1% as shipments and new orders rebounded over the month.
- Global equities continued to recover from the trade-related slump of early August (indeed, the escalation of last week barely elicited a reaction); however, haven assets like government bonds and precious metals also traded firmly, indicative of ongoing investor caution.