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Chinese growth cools
Growth in China is falling, but the government's actions seem to be working. Nonetheless, weexpect further easing to come. Moody's cuts ratings on Italy to two notches above speculative.Growth in China fell to its lowest in three years in the second quarter.
Compared with the secondquarter of last year, GDP rose by 7.6%, while the quarterly growth was 1.8%. This was as expected inthe market. Industrial production in June rose 9.5% y/y, and was slightly lower than expectations of 9.8%.But both investment and retail trades were better than expected in June, and rose respectively. 20.4%(expected 20.1%) and 13.7% (expected 13.5%). So while growth slowed from 8.1% in the first quarter to7.6% in the second quarter, there are signs suggesting the slowdown of the growth is coming to a halt.The quarterly growth rose from 1.6% in the first quarter to 1.8% in the second quarter, and good figuresfor investment and retail sales suggests that the government's measures to promote growth is starting towork.
Nonetheless, we expect further easing of policy in the future.The weekly U.S. employment figures for initial claims were better than expected.
Initial claims fellfrom 376' to 350' this week. It is the lowest level since early 2008, and may give the impression of animprovement in the U.S. labor market. But because the automotive industry typically lay down the work atthis time of year, and did not do it last year because of delivery problems from Japan in the spring, theseasonal adjustment of the figures have been difficult. We therefore have to wait to see if this is a sign ofan improvement.
Industrial production in the euro area was better than expected in May
, and rose 0.6% from April. Itwas anticipated zero growth. The decline from March to April was revised down from -0.8% to -1.1%.Despite a good May number, the tendency is weak, and the sector is likely to contribute negatively togrowth in Q2.
Inflation in Sweden remains low.
From May to June, consumer prices rose by 1.0%, unchanged fromthe previous month and just as expected. Core inflation rose by 0.9%. Thus, inflation is as the centralbank expected in June, and still below target.
Moody's cuts the rating on Italy from A3 to Baa2
, and warns that there could be further downgrades.Thus, Moody's rating of Italy is just two notches above junk. The timing is bad for Italy, today Italyauctions 4-6 billion euros of bonds.
Interest rates continue to fall.
In the United States contributed a good demand in the auction of 30-yeargovernment bond to interest rates. The
continues to weaken, and yesterday reached its lowest levelagainst the dollar in two years (1.2165).
strengthened yesterday after the BOJ limitedthemselves to changing the existing measures only. After large moves in
recently, yesterdaywas more quite.
on the other hand strengthened in the afternoon, both against theeuro, sterling and Swedish krona. Although the krone is now approaching the levels of March against theeuro when Norges Bank decided to cut interest rates, the import-weighted exchange rate I-44, whichNorges Bank looks at when setting interest rates, are roughly in line with what the central bank expectedin the Monetary Policy Report in June. We must therefore see a further strengthening before it may havean impact on interest rates. Both
European and U.S. stock markets
yesterday on weaker sentimentand several weak profit warnings.
Asian stock markets rose
, however, after the GDP figures fromChina were better than feared. The
oil price fell slightly in advance of the Chinese GDP figures onfear of a disappointing number, but picked up again and is
virtually unchanged since yesterdaymorning.
On the agenda today,
U.S. producer prices is expected unchanged from May to June. University ofMichigan sentiment index is expected to marginally up in July. Italy will auction 4-6 billion in governmentbonds today, and after the downgrade last night markets will probably watch it closely.
Yesterday’s key economic events (GMT)As ofUnitPrior PollActual07:30 Sweden CPI Jun y/y % 1.0 1.01.009:00 EMU Industrial production May m/m % -0.8 0.00.602:00 China GDP Q2 y/y % 8.1 7.67.6Today’s key economic events (GMT)As of Unit Prior Poll DNB12:30 USA PPI Jun m/m % 0.2 0.213:55 USA University of Michigan Jul Index 73.2 73.4