Mixed data

In the US, data was mixed over the past week, but underlying expectations of a slowdown during the second half of 2010 are expected to persist, especially with weaker manufacturing survey evidence.

Retail sales were weaker than expected with a headline 0.5 per cent decline for June after a revised 1.1 per cent decline the previous month. Inflation pressures remained weak as producer prices for June declined by 0.5 per cent.

In the manufacturing sector, the New York Index declined to 5.1 for July from 19.6 the previous month, while the Philadephia Fed index also dipped to 5.1 from 10.0. The Federal Open Market Committee (FOMC) minutes of the June meeting also registered a slightly more negative tone with comments that the economic outlook remained relatively modest while the risks were tilted to the downside.

In the eurozone, the inflation rate was confirmed at 1.4 per cent during June, as expected, and down from 1.6 per cent registered during May. On a month-on-month basis, inflation pressures in the 16 countries using the euro was flat, also in line with its earlier flash estimate.

In the manufacturing sector, industrial production remained steady, as this increased by a further 0.9 per cent during May, although weaker than expected. On a year-on-year basis, industrial production surged more than in any month in almost two decades, since the eurozone began in January 1991, as production increased by 9.4 per cent in May after an upwardly revised 9.6 per cent increase registered in the previous month.

Meanwhile unadjusted data for May showed that the trade deficit in the 16-country area came in at €3.4 billion, while April's surplus was revised from the previously reported €1.8 billion to €0.3 billion.

Annual inflation, as measured by the Consumer Price Index (CPI) eased to 3.2 per cent in June from 3.4 per cent registered in May. On the month, prices rose 0.1 per cent. The biggest downward pressure to CPI during the month came from falling energy prices.

Core inflation, which takes out volatile energy and food prices, unexpectedly rose to 3.1 per cent, its highest reading since 1997, raising fears that price pressures are far more entrenched than thought. Meanwhile, the final reading of GDP for the first quarter of this year was unrevised at 0.3 per cent.

This article has been prepared by Bank of Valletta plc, which is licensed to conduct investment services business by the MFSA, for your general information only.