Sleepy Overnight Session Interrupted By Chinese Market Turmoil

Back to that conference quickly. Our China economists note that a committee was set up to oversee regulatory issues in the financial sector which in our colleagues’ mind should help the coordination of the regulators in the long term but is unlikely to cause a visible change of policies in the short term. Our economists’ key takeaways were: (1) financial regulation may become more coordinated (2) the government aims to control financial risks without sacrificing growth (3) the effectiveness of the new institutional setup would depend on who will lead this committee and the PBoC (4) President Xi reiterated opening up of the financial sector and promoting RMB internationalization.

The remainder of the weekend newsflow has been fairly light. The FT is running  a story about how President Trump’s approval rating has fallen to 36% and down 6pts from April. On a related subject the CBO has also announced that it won’t release its verdict on the Republican health care bill today after Majority leader McConnell announced that he’s postponing plans to begin the Senate debate in the next few days.

Back to that US data on Friday. As noted above, the June inflation numbers disappointed with both headline (0.0% mom vs. +0.1% expected) and core (+0.1% mom vs. +0.2% expected) readings printing below expectations. That now puts the annual rates at +1.6% yoy (down three-tenths) and +1.7% yoy (unchanged) respectively. It’s worth noting also that the six-month annualized core rate is now down to +1.3%. The big driver for the core appeared to be declines in prices for airfares, apparel and new cars which offset higher prices for shelter and medical care. Following the disappointing data our US economists have now lowered their 2017 forecast for core inflation to 1.7% yoy.

That wasn’t all though with the June retail sales stats in the US also coming in a little disappointing. Headline retail sales fell -0.2% mom (vs. +0.1% expected) while both the core ex auto and gas (-0.1% mom vs. +0.4% expected) and control group (-0.1% mom vs. +0.3% expected) components also printed big misses. In addition, the University of Michigan consumer sentiment survey for July declined 2pts from June to 93.1 (vs. 95.0 expected) driven by and large by a fall in the expectations component to 80.2 (from 83.9). The current conditions index did however nudge up to 113.2 (+0.7pts). Interestingly, in contrast to what we saw in the June CPI report, both 1y and 5-10y inflation expectations actually nudged up one-tenth each to 2.7% and 2.6% respectively (the latter is actually the highest since January).

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