China’s manufacturing and services sectors show weakness and are in need of stimulus

Welcome signs of easing US inflation and an intense day for tech companies Friday helped the major US equity indices shake off the previous day’s wobble to end the week with broad gains.  The S&P Index was up 1% at 4,582.23 and gained about 0.9% for the week, the Dow Jones Industrial Average was up 0.5% at 35,459.29 and added 0.7% for the week, and the Nasdaq Composite was up 1.9% at 14,316.66 and gained nearly 1.5% for the week.  In Europe, the Euro Stoxx 50 Index also closed in positive territory, advancing by 0.4% to wrap up the week with an overall gain of 2.0%. 

Summary for 31.07.2023 

• Most Asian equities rose on Monday, extending last week’s rally as optimism over a Chinese stimulus largely offset data showing business activity in the country deteriorated further in July.  Japanese shares were the best performers in the region, rebounding sharply from losses on Friday as the Bank of Japan carried out an unscheduled bond-buying operation to help stem a spike in yields.  
• European shares are headed for a muted start while US equity futures rose slightly as the market is set to end July with solid gains. 
• Oil prices fell slightly this morning after weaker business activity data from China pointed to worsening economic conditions in the world’s largest oil importer, although the prospect of more stimulus measures in the country kept losses limited. 

• China’s manufacturing activity fell for a fourth straight month in July while the services and construction sectors teetered on the brink of contraction, official surveys showed on Monday, threatening growth prospects for the third quarter.  The official manufacturing PMI inched up to 49.3 from 49.0 in June while the non-manufacturing PMI dropped to 51.5 from June’s 53.2. 
• The US Commerce Department said on Friday that growth in its Personal Consumption Expenditure (PCE) prices index had slowed to an annual rate of 3% in June from 3.8% the month before, while the core rate slowed to 4.1% from 4.6% the month before.  The core number is the one the Fed watches most closely.  It had been “sticky” at rates of 4.6% to 4.7% for most of this year. 
• Intel jumped more than 5% last Friday after posting a quarterly profit when analysts had expected a loss and said that it is in an excellent position to capitalise on artificial intelligence growth.  The company’s cost savings plan contributed to its performance, Intel said in a press release.  Like many infotech companies, it had reduced headcount over the year.  However, the company’s earnings have declined to an annual basis for seven straight quarters, while sales have shrunk for six. 
• Chevron was down about 0.7% in Friday’s session, while fellow oil company Exxon Mobil dropped about 1.6%, after reporting that falling oil prices had cut both companies’ quarterly profits in half. 
• Ford Motor was down more than 4% on Friday as investors were apparently concerned about how the automaker will deal with falling prices and disappointing demand for its electric vehicles.  Such concerns outweighed Ford’s announcement of better-than-expected quarterly results and a rosier full-year forecast after market close Thursday. 

• Procter & Gamble gained nearly 3% after delivering better-than-expected results on Friday, and the CEO highlighted moderating inflation in a post-results interview. 
• Roku closed Friday session more than 24% higher after reporting a smaller-than-expected loss for the last quarter, though the company also acknowledged challenges from shrinking ad revenue. 
• First Solar pulled back from an early surge Friday but was still up 5% after saying it had tripled its profit in the previous quarter.  Meantime, Enphase Energy tumbled nearly 8% after delivering weaker-than-expected quarterly results. 
• This will be a hectic week with US non-farm payrolls and earnings reports taking centre stage.  In the US, investors will be following factory orders, job openings, and the ISM Manufacturing and Services PMI.  Elsewhere, the central banks in the UK and Australia will decide on the course of their monetary policy.  Additionally, the spotlight will be on Q2 GDP growth for the Euro as well as the inflation rate in the region.