A delayed reaction from emerging markets – weekly update 20 August

A delayed reaction from emerging markets – weekly update 20 August

Ben Seager-Scott
Published: 20 Aug 2018 Updated: 13 Jun 2022

A look back over macroeconomic and market events for the week ending 17 August 2018. An escalating economic crisis in Turkey drove risk-off sentiment at the end of the week. On the macro side, UK second-quarter GDP provided few surprises, but data out of Japan were surprisingly strong. There are some mid-ranking economic data due this week, including UK inflation, wages and retail sales.

US productivity updates

US productivity improved in the second quarter but unit labour costs on a twelve month basis are still higher. Second quarter non- farm productivity rose from 0.3% to 2.9% quarter on quarter (qoq) which helped Unit Labor Costs fall -0.9% qoq. This follows the first-quarter unit labor cost figure which was revised up to 3.4% qoq as productivity gains failed to keep up with wage increases, a classic driver of inflation.

Compared to a year earlier, unit labor costs are 1.9% higher, though this rate has been steadily cooling from the 2.5% registered in the third quarter last year. It will be important to see whether tax- incentivised capital expenditure helps spur productivity further.

Retail sales were also better than expected, increasing 0.5% month on month (mom), ahead of the 0.1% expected, and an improvement of the downwardly-revised 0.2% in June. Industrial production was more of a disappointment, slipping from an upwardly-revised 1.0% to 0.1% mom, which was slightly worse than the 0.3% forecast. Capacity utilisation held steady at 78.1%.

A rare miss for China

China had a rare miss on its key economic metrics. Retail Sales cooled from 9.0% to 8.8% year on year (yoy), defying forecasts for a marginal increase to 9.1%, whilst Industrial Production was unchanged at 6.0% yoy (an increase to 6.3% was forecast).

Most notably, Fixed Asset Investment growth slipped from 6.0% to 5.5% yoy, compared to the no-change forecast. Given China is a command economy, missing forecasts is somewhat of a surprise and these figures reinforce the trend of a discernible slowdown in the world’s second-largest economy, while adding to the pressure to achieve a soft-landing amidst a brewing global trade war.

UK retail numbers

UK retail numbers were good, increasing 3.5% yoy in July, up from 2.9% in June with forecasts for no change. Excluding autos, Retails Sales grew 3.7% from 2.9% (2.8% expected) suggesting some consumer strength is returning now that real wages are no longer consistently negative.

Other data passed without event. CPI inflation rose 2.5% yoy as expected (from 2.4%), whilst average weekly earnings rose 2.4% yoy, from 2.5% (forecast was for no change). Unemployment fell 0.2% to 4.0% against forecasts for no change.

Last week’s other events

  • Eurozone GDP expanded at 2.2% yoy in the second quarter, up from 2.1% with no change expected. Industrial Production for June rose at 2.5% yoy, versus 2.4% expected (from an upwardly-revised 2.6%). The ZEW survey showed the business expectations index improved from -18.7 to -11.1 in July.
  • US consumer sentiment from the University of Michigan slipped from 97.9 to 95.3 (an increase to 98.0 was expected). Import Prices in July were 4.8% higher than a year earlier (from 4.7%, 4.5% expected) whilst Export Prices were 4.3% higher (from 5.3%).

The markets

Emerging market equities sank last week in a delayed reaction to broader troubles. Commodities were also weaker, whilst developed market equities and bonds were largely unmoved.

One-month performance of major asset classes in sterling terms


In what was almost a delayed reaction, Emerging Markets weakened despite more subdued rhetoric in the trade war and the situation in Turkey. The MSCI Emerging Markets index fell -3.0% on the week, with the Hang Seng index in Hong Kong shedding -3.9%. In developed markets, the S&P 500 in the US rose 0.7% whilst most other markets dipped on the week. In the UK, equities were down -1.2%, whilst Europe excluding the UK was down -1.1% and the Japanese TOPIX index slipped -1.3%.


Core sovereign bond yields were barely moved on the week, with benchmark 10-year yields all falling 1 basis point for US Treasuries, UK gilts and German bunds to 2.86%, 1.24% and 0.31% respectively by the close on Friday. 10-year Japanese Government Bonds remained at 0.10%.


There was continued weakness across the commodity complex. Gold fell through the US$1,200 mark to finish the week at US$1,184 per ounce, whilst Brent Crude oil slipped further towards the bottom end of its trading range, ending at US$71.83 per barrel by Friday and Copper closed down at US$2.63 per lb.


Major developed currencies were fairly unperturbed last week. The Turkish lira also appeared to stabilise after Qatar stepped in to offer some support; the currency is now trading down -38% relative to the US dollar since the start of the year. Sterling closed on Friday at US$1.27, €1.11 and ¥141.

The week ahead

With no article due out next week owing to the UK bank holiday, the next two weeks are previewed here. The main highlights will be global PMI and inflation figures. On Thursday 23rd Japan kicks off PMIs with Manufacturing PMIs out overnight, followed by the Eurozone numbers later in the morning, (markets expect Eurozone Composite PMI to tick up from 54.3 to 54.5), and then US PMIs from Markit are reported in the afternoon (Manufacturing PMI is forecast to have slipped from 55.3 to 55.0 whilst Services PMI is expected unchanged at 56.0). China then reports official PMI readings on Friday 31st. In terms of the inflation numbers, Japan releases CPI in the early hours of Friday 24 August (1.0% yoy from 0.7% expected), then US PCE, the Federal Reserve’s preferred measure, is out on Thursday 30th with Eurozone CPI inflation out on Friday 31st. The daily breakdown is as follows:

Monday 20th: It is a quiet start to the fortnight. UK House Prices from Rightmove are out in the morning, with Eurozone Construction Output later in the morning the only points of note.

Tuesday 21st: Japan reports sales data first thing, followed by the latest monthly government spending figures from the UK.

Wednesday 22nd: Japan reports All Industry Activity in the morning, and then in the afternoon we have US Existing Home Sales with the minutes from the latest Federal Open Market Committee meeting later in the evening.

Thursday 23rd: As well as Manufacturing PMI, Japan will also update on its Leading and Coincident Index readings in the morning. The remaining PMI figures were covered above, with other data out on Thursday including Eurozone Consumer Confidence and the Kansas City Fed Manufacturing Activity index.

Friday 24th: Japanese inflation is released (and covered above), and we will also have US Durable Goods Orders to look out for at the end of the week.

Monday 27th: A bank holiday in the UK, but data released elsewhere includes the IFO survey of German businesses and the activity indices from the Chicago and Dallas Federal Reserves.

Tuesday 28th: In the afternoon, the US reports Consumer Confidence and the Richmond Fed Manufacturing Index, but there is little else of note due out.

Wednesday 29th: In the US, we will have the second estimate for second-quarter GDP as well as Pending Home Sales as the main releases of the day.

Thursday 30th: Early in the morning Japan releases its Retail Sales figures, and then later in the morning the UK updates monetary data including net consumer credit and money supply. Later in the morning, Eurozone Business and Consumer Confidence numbers are out, and then in the afternoon we will see Personal Income and Expenditure figures released alongside PCE inflation, covered above.

Friday 31st: A minute after midnight, UK Consumer Confidence from GfK and the Lloyds Business Barometer are released, shortly followed by Japanese jobless numbers and Industrial Production. Chinese PMI numbers and Eurozone PMI are out later on (both covered above).


This article was previously published on Tilney prior to the launch of Evelyn Partners.