* UK Consumer Prices Index rises to 4.4% in July
* European growth slows as debt crisis concerns mount
* Fitch Ratings reaffirms US´ triple A credit rating
* Japan´s GDP falls 0.3% in Q2 11
* Data indicates that the Chinese economy is heading for a soft landing
* Brewers witness renewed takeover activity
UK inflation hits 4.4% in July
The latest figures show that UK’s annual inflation rose 4.4% in July, up from 4.2% in June. Annual core inflation, which strips out food and fuel prices, rose from 2.8% in June to 3.1% in July. Bank of England (BoE) Governor Sir Mervyn King was forced to write his seventh successive letter to Chancellor of the Exchequer George Osborne to explain why inflation was higher than the Bank’s 2% target, citing high commodity prices, a weak Sterling, and the increase in VAT this year as major contributors. Minutes of this month’s meeting of the BoE’s Monetary Policy Committee revealed that the Committee discussed further monetary stimulus such as gilts purchases (quantitative easing). Additional stimulus was viewed as unwarranted in part because of the prevailing rates of inflation and also because interest rates had already fallen - providing some level of monetary stimulus. Overall, the Committee remains optimistic on the economy. The minutes said that “…after some slowing in the near-term, a gradual recovery in the pace of activity was expected over the medium-term.”
Separately, UK retail sales volumes, excluding petrol sales, fell by 0.2% in July from a year earlier. During the three months to July both the volume and value of sales increased 0.1% from the previous three months. The UK unemployment rate rose to 7.9% in the three months to June, up from 7.7% in the three months to May. Meanwhile, the Council of Mortgage Lenders said that gross lending, which does not include repayments, was broadly flat in July compared with the previous month.
Euroland Q2 11 GDP growth slows to 0.2%
Disappointing economic reports this week led to continued volatility on financial markets in Europe as investors questioned the sustainability of the region’s economic recovery. In the three months to the end of June, GDP of the 17-nation economy expanded by 0.2%, its worst performance since emerging from the 2009 recession. German output rose 0.1% in the second quarter compared with the previous quarter, which was much weaker than had been expected. The European Union’s statistics office said that Euroland exports declined by seasonally-adjusted 4.7% in June from the previous month. Meanwhile, it was reported that the European Central Bank (ECB) had lent dollars to a bank in the Euro area for the first time since February. This suggests that at least one bank was having difficulties obtaining the dollar funds it requires.
In other news, German Chancellor Angela Merkel and French President Nicolas Sarkozy pledged to defend the Euro with plans to reinforce economic governance, the preparation of annual budgets on harmonised economic outlooks and work towards a common corporation tax by 2013. They also want all 17 members of the region to be obliged to produce balanced budgets and plan to revive proposals for a European tax on financial transactions.
A separate report revealed that the ECB had spent €22bn on Italian and Spanish government bonds in an attempt to keep official borrowing costs in the region’s third and fourth largest economies under control (yields fell from above 6% to below 5% - and prices rose.) The size of the intervention was a record amount. The ECB resumed bond buying on August 4 after a four-month hiatus.
US economic data mixed
This week’s reports and figures in the US showed continued optimism in some quarters. Fitch Ratings said that the US still deserves a triple A credit rating with a stable outlook. The ratings agency’s affirmation follows Standard & Poor’s downgrade of US creditworthiness to AA+ and Moody’s decision to maintain the country’s triple A rating but cut its outlook to negative.
The Conference Board’s gauge of leading economic indicators, a measure of the US outlook for the next three to six months, climbed 0.5% after a 0.3% gain in June. The National Association of Home Builders said that homebuilder confidence was unchanged in August. However, construction of new homes in the US dipped in July. Retail sales, excluding cars, rose by a stronger-than-expected 0.5% in July from the previous month. Revised June numbers continued the upward trend, edging up to 0.3% from 0.1% estimated previously. Figures from the Labour Department showed that the average number of workers filing applications for jobless benefits over the past four weeks dropped to the lowest since mid-April.
Less positive was the latest Thomson Reuters/University of Michigan consumer sentiment index which fell to 54.9, a 30-year low and well below July’s heading of 63.7. Observers cited the ratings downgrade and increased equity market volatility for the pessimism among households. Consumer expectations, a leading indicator of the economy because it asks how well off people expect to be in a year from now fell to 45.7 from 56.0 in July. The Federal Reserve Bank of Philadelphia said that its index of manufacturing activity in the region fell to minus 30.7 in August, the weakest reading since March 2009.
Meanwhile, July’s Corporate Prices Index (CPI) increased 0.5% from June. The core index, which excludes food and energy, rose 0.2%, pushing the increase over the past year to 1.8%. Core producer prices of goods sold by wholesalers climbed 0.4% in July following a 0.3% increase in June. Overall producer prices were also higher over the month; rising 0.2% as rising food prices outweighed a drop in energy prices.
Japan’s GDP contracts by 0.3% in Q2 11
Increased public spending and a rise in inventories partly explain why Japan’s GDP exceeded expectations in the second quarter. However, GDP still fell by a seasonally-adjusted 0.3% between April and June from the previous quarter and contracted by 1.3% on an annualised basis. Japan is still suffering from a sharp fall in net exports following the earthquake in March and the nation’s GDP has contracted for three consecutive quarters.
Separately, Japan’s exports fell more than expected in July – down 3.3% from a year earlier. The strength of the yen, which has been trading very close to its March record of ¥76.25 to the dollar, makes Japan’s exports less competitive at a time when demand from major markets such as the US is also faltering.
Emerging market news
This week’s news and reports in China provided further evidence that the nation will experience a ‘soft landing’ – an orderly economic deceleration. A leading economic index for China increased 1.0% in June after climbing 0.6% in May and 0.3% in April. New home prices in Beijing, Shanghai and three other cities were unchanged in July from the previous month. The Ministry of Commerce reported that foreign direct investment rose 19.8% to as $8.3bn in July from a year earlier.
Meanwhile, in India an index measuring wholesale prices of farm products, including rice and wheat, rose 9.03% in the week ending August 6, which was 9.9% lower than the previous week. Elsewhere, Brazil’s economic activity, a proxy for GDP, fell a largerthan-forecast 0.26% in June from the previous month and from revised growth of 0.05% in May. Industrial production fell 1.6% in June, the second-biggest drop in output since 2008. Brazil’s business confidence in the second quarter fell to its lowest level since 2009. The data reinforces the view that Brazil’s central bank will call a halt to its cycle of interest rate increases that began in January.
Company news
This week saw takeover activity amongst several brewers. SABMiller, the world’s second-largest brewer by sales surprised observers by launching a hostile AUS$4.90 a share cash takeover bid for Fosters. Two months ago SABMiller made its initial AUS$4.90 a share cash bid for the Australian brewer which was rejected by Fosters as being too low to merit consideration. Foster’s share price has fallen steadily this month and rose to AUS$4.96 following news of the hostile bid. SABMiller’s share price rose 1%. The UK-listed brewer said that it would fund the offer with the help of new debt by a range of financial institutions.
Asahi Group said that it will buy New Zealand beverage maker Independent Liquor Ltd. for NZ$1.53bn (US$1.3bn). The deal gives Asahi control of the world’s fourth-largest producer of bottled cocktails. Japan’s largest beermaker by volume plans to increase its portion of overseas sales to offset declining sales at home. The group last month paid around US$200mn for the water and juice business of Australia’s P&N Beverages and US$309mn for New Zealand drink maker Charlie’s Group.
Elsewhere, Hewlett-Packard revealed plans to overhaul its businesses, agreeing to buy Autonomy for US$10.3bn. Hewlett-Packard also said that it is considering selling off its PC division as consumer demand wanes and Apple. lures buyers to its iPad. Hewlett-Packard intends to shift its focus away from hardware to become more of a software and services business. In a separate statement, Hewlett-Packard said that sales in the current period will be around US$32.1bn – US$32.5bn, below most estimates. The company also expects earnings to be lower than previous forecasts. Hewlett-Packard’s share price fell 6% as a result.
