Summary
- China is slowing.
- The yield curve situation has improved somewhat.
- The large-cap/small-cap performance split continues.
Chinese growth is slowing. From The National Bureau of Statistics:
According to the preliminary estimates, the gross domestic product (GDP) of China was 45,093.3 billion yuan in the first half of 2019, a year-on-year increase of 6.3 percent at comparable prices. The year-on-year GDP growth for the first quarter was 6.4 percent, and 6.2 percent for the second quarter. The value added of the primary industry was 2,320.7 billion yuan, a year-on-year growth of 3.0 percent; the secondary industry was 17,998.4 billion yuan, a year-on-year growth of 5.8 percent; and the tertiary industry was 24,774.3 billion yuan, a year-on-year growth of 7.0 percent.
Coincidental indicators are still in good shape. GDP grew at an annual pace of 6.7-6.8% from the 2H16 to 1H18. They have since slowed to 6.2%. Unemployment has trended lower the last year, falling from 4.05% to 3.67%. Industrial production rose 6.5% Y/Y in the latest report, although the Markit PMI has been below 50 in four of the last seven months. In the remaining three, it's barely been above 50, indicating a fair amount of weakness. Exports have been softer: However, they have rebounded a bit, and while below levels from the end of 2018, they are higher than prints from 2015 to 2017.
The NY Fed released its latest economic snapshot. Here are a few key takeaways:
- Real consumer spending rose solidly in May
Real business equipment spending fell modestly in 2019Q1, as investment continued to weaken from its pace in 2018. Housing activity indicators were mixed. Existing home sales rose in May, but new home sales fell. Single-family housing starts and permits remained lackluster. Core PCE inflation stabilized in May but remained below the FOMC’s longer-run objective.
Since consumer spending accounts for 70% of US economic growth, the solid increase in consumer spending bodes mostly well for the economy. But the lack of growth in business investment spending and the soft housing market will probably keep growth in check.
The yield curve picture has improved somewhat:
Although the belly of the curve is still inverted, the spread (see the blue lines in both charts) has improved a bit over the last week.
Let's turn to today's performance tables.
This is very weak table. The long-end of the Treasury market led the markets higher - which is never a good fact-pattern for the bulls. The QQQ was up 0.32%. This was the only major winner of the indexes. The DIA and SPY were around 0% while smaller-cap indexes were down for the day.
Let's take a look at the daily charts, which will once again show the split in the performance differences between small and larger-cap indexes.This continues to move higher with strong underlying technicals. All the EMAs are moving higher, the shorter EMAs are above the longer EMAs, and the 200-day EMA is moving up. Momentum is also rising.The QQQ has similar technical underpinnings.Small-caps also have bullish underlying technicals - EMAs are rising, and the 200-day EMA has a modestly upward sloping angle. While prices are above the 200-day EMA, they have been moving sideways since the beginning of July while also remaining below the high of 160.4 from early May.And micro-caps have been using the 200-day EMA as technical resistance for the entire month of July.
The large-cap/small-cap split continues. At some point, this will affect the upward move of the larger-caps.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.