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Source: Fidelity International, June 2019
China GEAR is near lows, while US is more solid
China has ‘double-dipped’ - not quite making new lows, but again consistent with growth at around 5.5 per cent, down from the 6-7 per cent range the past few months. The tenacious Eurozone capitulated, edging down to a five-year low, albeit still looking broadly flat year-to-date. The US is outperforming, but it is down considerably from recent highs, and even this looks predicated on outsized strength in consumer spending.
The China GEAR is now close to its lows seen in the fourth quarter of 2018. This slowing is broad-based, most prominent in electricity data, truck sales and investment, and every business survey component has deteriorated. US tariffs from May/June are now feeding into the data, with external trade components also falling materially. Retail sales slowed after a solid recovery. Even real estate indicators, a prior area of strength, have turned more mixed.
The US GEAR overall remains solid, supported by consumption data and consumer confidence. But recent slowing is broad-based across both hard and soft data. Business surveys have broadly worsened, despite actual manufacturing production stabilising at weak levels. Pockets of data on the labour market are also weakening, suggesting employment gains may have peaked.
Japan’s GEAR is off its lows after a miserable first quarter. Reassuringly, it is no longer in contraction, with hard data in retail sales and shipments driving this month’s stable reading. But soft data remains muted, giving limited hope of an imminent upturn, especially given a scheduled consumption tax hike in October.
Some of the most interesting (read: negative) stories lie elsewhere. Some of the small, open European economies have broken down to clear multi-year lows - notably Sweden and Switzerland - and the less said about the UK the better. Latin America is failing to find any momentum whatsoever, even as some other EMs - Turkey, South Africa - look well past their worst.
Acceleration around the corner?
Our Fidelity Leading Indicator (FLI) would say global acceleration is just around the corner. An optimist would say that this latest dataset should show the bulk of the pain from the latest US-China tariff escalation, and so this month actually makes it look as if we’ve dodged a bullet. Someone more patient than the average investor would say that we just need a little more time for plunging global bond yields and Chinese stimulus to feed through.
All things considered, as we enter the second half of the year, our bold economist prediction is that this could well turn out to be a year of two halves.