Good morning! Here’s what you need to know:
Markets Are Up. Stock markets around the world are nicely in the green following a mix of economic news. Asia closed up with Japan’s Nikkei climbing 0.3% and Hong Kong’s Hang Seng gaining 0.8%. In Europe, Britain’s FTSE is up 0.4%, France’s CAC 40 is up 0.8%, and Germany’s DAX is up 1.1%. U.S. futures are firmly in the green with Dow futures up 67 points and S&P futures up 9.3 points.
The Euro Zone Continues To Be A Huge Mess. The Euro Zone’s new June industrial output report was just the latest in a string of disappointing economic reports coming out of the region. “Output at factory gates single currency bloc fell 0.3% on the month in June after a 1.1% drop in May, against market expectations of a 0.3% rise,” reported Reuters’ Martin Santa. “It was the lowest annual reading since August 2013.”
Bank Of England’s Carney Says Rate Hikes Will Be “Gradual And Limited.” “Mark Carney said global political risks and the euro region’s weakness might weigh on Britain’s recovery as he insisted that the Bank of England won’t raise interest rates too soon or too fast,” reported Bloomberg’s Scott Hamilton. “Speaking after a mixed labour market report that showed the first drop in wages since 2009 and the lowest unemployment since 2008, the BOE governor said that Britain’s growth ‘faces some challenges.’ Emphasising the weakness of pay growth, he said that policy makers share a similar view to investors on the path of interest rates being “gradual and limited.”
The First Big Central Bank To Raise Rates. “The Bank of England’s inflation forecasts are consistent with the first rate increase coming in February,” said Bloomberg economists Jamie Murray and Niraj Shah. “The outlook released today puts the rate of inflation close to 2% at the end of the BoE’s forecast period, validating those market expectations.” A February rate hike would come months before economists’ forecast for when the Federal Reserve will begin hiking rates.
Japan’s GDP Collapses. Japan’s GDP fell 6.8% in Q2, reversing a 6.1% spike in Q1. While the drop is jarring, it wasn’t totally unexpected. In fact, economists were actually forecasting a 7.0% decline. Late in 2013, Japan announced a consumption tax hike that would go into effect in April. This caused Japanese consumers to shop like crazy in Q1 in anticipation of the tax, pulling forward sales that would have occurred in Q2
China’s Money Flow Is Slowing. “The amount of money flowing into China’s economy slowed to the lowest level in nearly six years in July, adding to fears that a sustained recovery may be at risk in the second half of the year despite government efforts to shore up growth,” reported Reuters’ Xiaoyi Shao. “China’s total social financing (TSF) aggregate, a broad measure of liquidity in the economy, fell to 273.1 billion yuan ($44.34 billion) in July, about one seventh of that in June and the lowest monthly reading since October 2008 in the depths of the global financial crisis.”
Candy Crushed. Mobile game maker King Digital reported quarterly earnings that were right in line with expectations. However, revenue was light. The stock fell by around 20% after the report.
Mortgage Applications Tumble. Demand for U.S. mortgages fell last week. “The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, fell 2.7% in the week ended Aug. 8,” reported Reuters Caroline Valetkevitch. “The MBA’s seasonally adjusted index of refinancing applications fell 4.0%, while the gauge of loan requests for home purchases, a leading indicator of home sales, fell 1.0%.”
Get Ready For The Retail Sales Report. We’ll get the July U.S. retail sales report at 8:30 a.m. ET. Economists estimate sales climbed by 0.2% in July, or 0.4% excluding autos and gas. “Early indications point to solid upside in retail sales in July,” said Morgan Stanley’s Ted Wieseman. “Unit auto sales fell to a 16.4 million unit annual rate in July from an eight-year high of 16.8 million in June, but industry reports indicated that the pullback reflected lower fleet sales, while retail sales rose. Meanwhile, our AlphaWise team’s data pointed to a solid rise in ex autos and gas sales, and our retail analysts in equity research saw somewhat muted mall sales trends in July but indications of early back-to-school sales being off to a good start. So we look for a solid further 0.4% gain in the core “retail control” category on top of a 0.5% rise in June.”
The SEC Is Probing Hedge Fund-Like Mutual Funds. “The Securities and Exchange Commission has launched a broad examination of alternative mutual funds, according to people familiar with the matter, kicking off regulatory scrutiny of one of the hottest and most controversial investment products to be offered to small investors,” report the WSJ’s Juliet Chung and Kirsten Grind. “The so-called funds “sweep” includes examinations of large investment firms such as BlackRock Inc. and AQR Capital Management LLC but also smaller firms that previously didn’t offer mutual funds, according to some of the people … Alternative funds, or “liquid alternative funds,” describe a class of mutual funds that employ hedge-fund-like strategies, including betting on some stocks and against others, trading futures contracts and using derivatives to increase leverage.”
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