Eureka's Week: Australian banks, investment tech, leverage, Brexit dissection

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Eureka's Week

Timely insights for a changing world

Paul Clitheroe

History quickly reveals the vast upheavals humans have endured. Wars and pestilence have been commonplace. During the plagues of the Middle Ages up to two thirds of the population of Europe died. Then there have been the many depressions, world wars and market crashes. For better or worse, change has always been with us.

Of course most of this “alarming” change has led to huge advancements. Again, never perfect, but better. Just 170 years ago in the long living countries of Japan and Norway, women had an average life expectancy of 40. In among all the anxiety about funding retirement we have forgotten that in 1908 our forebears chose a male age pension entitlement age of 65. This was at the time, quite wise. The average male life expectancy was a bit under 55.

So change has imperfectly delivered vast benefits to many. In among the angst it is a shame that we don’t realise that an aging population is not a problem in the most obvious sense. Our population is aging because we are living longer and at an average standard of living never seen before. Sure, doubling the average length of our lives will bring huge challenges. But, for mine anyway, better than being dead. It is also shame that under the deluge of negative media we don’t for a minute celebrate the halving of global poverty over the last 20 years. At times though, change does make you wonder. The United Nations “World Toilet Day”, pointing out that more people have access to a mobile phone than to sanitary toilet facilities, is for me an example of that.

More than three decades ago my wonderful founding partners (Arun Abey, Peeyush Gupta, Suvan de Soysa and Darryl Harford, who joined us a couple of years into our adventure) and I saw the impact of a key change: the deregulation of the Australian economy. Prior to 1983 Australians typically owned two assets: a property and a bank account. Shares were for a small minority of wealthy folk, managed funds were in their infancy, and crikey were they expensive. Entry fees were typically around 8 per cent with huge management expense ratios.

The change we saw was around advice. We formed ipac in 1983 as one of Australia’s early fee-for-service advice businesses. It grew strongly and in 2002 we sold to AXA, which in turn was acquired by AMP, the current owners. Arun Abey remains the Chairman of ipac, I’m a non-executive director and to this day a strong supporter of high quality advice delivered by salaried, highly trained professional advisors.

Now more change is upon us. While a high quality company like ipac is ideal for high net worth individuals with complex financial structures that want a “bespoke” solution, by definition such advice is not cheap. The question I have been pondering is, “What about everybody else?” For each person who is in a situation where detailed advice is worth every cent, there are many more who are not.

Over the years many people contacted me after my media appearances. Most were not well suited to an advice firm. And yet the questions they’d ask me were surprisingly similar: Super or pay off the home? Property or shares? How much do I need to retire? Pay for advice or do it myself? Then it struck me: everyone is unique in the goals that they set, their incomes, assets and attitude to risk, and yet the questions they ask are remarkably similar. Was it possible, I wondered, to use the dramatic change in technology to answer questions such as these at a fraction of the “old world” costs?

I had long been aware of vanbetmen and Intelligent Investor but more by accident than design I ended up in a meeting where their vision was presented. I liked most of it and eventually agreed to become an investor. Then early last year I became Chairman.

So why do I think vanbetmen is a really interesting company in a period of dramatic change? Because for each investor that’s suited to ipac there are many more that want to take a role for themselves, at much lower cost. And there are huge numbers of people who want to invest smaller amounts of money, but at an even lower cost. vanbetmen interests me in that it provides a smorgasbord of choices for investors, opening up the kinds of services that used to be the preserve of the rich. I really like choice, and I think you do to. There is no formal menu and you can do it in your pyjamas.

You can choose information. Intelligent Investor has an 18-year history of providing members with quality research on Australian stocks, outperforming the All Ordinaries each year since 2001. The recent acquisition of Eureka really broadens that offer. Together, there’s a wealth of information about investment and investing.

And when you want to act? Here, vanbetmen is a great solution. I love the free portfolio manager and other investing tools. In my non-techno world, it just works! So all of a sudden as an interested investor I seem to be going places. I can access information; I can take action; follow along on the free portfolio manager; and examine the overall risk and asset allocation of my portfolio. That’s pretty good.

I’m no different from anyone else. I like choice and making decisions but I need information to help guide my choices. I also want to be up-to-date about my investment and be kept in touch with a rapidly changing investment environment. Finally, fees! While returns are uncertain, fees most definitely are not. Returns are not going to be easy to come by in this climate so I’m very sensitive about them. And yet I can see typical fees in some managed funds eating half my return.

That is the logic behind vanbetmen. The information is inexpensive (and for most, tax deductible). Action, such as buying shares, ETFs and so on can be done cheaply. And following the performance of your investments is free. There’s even a lower hassle way to act on our research, via our self-managed accounts. Don’t do anything without reading the prospectus, but here is a low cost way to invest in assets all over the world.

Okay, so what’s the catch? Well the “catch” is our “face” to investors is via our website, the information and the emails we send to you. We don’t have branches, advisors and fancy offices, nor do we knock firms that do. There is a real need for professional advisors that you can sit down with, face-to-face.

But our model is different. vanbetmen, Eureka and Intelligent Investor combine analysts and researchers with high-quality technology to deliver actionable insights and tools to help you make better investment decisions at an affordable cost. For me, it’s a new and exciting beginning. For you, I hope it’s also enjoyable but more importantly profitable.


Our banking sector: Anything but an island

John Addis

charts and additional analysis by Callam Pickering

This morning I want to focus on a sector close to the hearts of many subscribers – Australian banks. James Carlisle, our research director and resident banking analyst at Intelligent Investor, is on holiday, so I’m seizing my chance. He can shout at me when he returns. I should also declare a lack of skin in the game. I’ve never owned a big four Australian bank, which might reflect poorly on me, although I’ve done okay without them. But long term bank investors have probably done better, as this chart shows:

Over the last 20 years the ASX All Ords has returned an average of 4.4 per cent a year. The major banks have beaten that hands down, delivering an average return of 7.5 per cent pa. Things were wobbly during the GFC but the comeback, assisted by government guarantees, was stupendous. Investors that held on through thick and thin (there’s a lesson there) have done remarkably well. Even compared with their international equivalents, Australian banks are top of the class:

Since the GFC, when interest rates have slowly headed towards zero, Australian and Canadian banks have been the only ones with ROEs in double figures – well into double figures in fact. How have they done it? Well, our banking sector isn’t especially competitive. They all work pretty much the same way, do pretty much the same thing and charge a pretty penny for it. That’s part of it. But this chart showing real interest rates for cash, housing (mortgages) and business loans over the past 10 years is a better explanation.

A bank makes most of its money from borrowing out at one rate (the cash rate, more or less, shown as the blue line) and lending it out at a higher rate (the red, green and purple lines, showing different forms of lending). In banking this is called the interest rate spread and the higher it is, the more money it makes.

Since the GFC the cost of bank borrowing has fallen substantially but in real terms what we’re charged on our loans hasn’t fallen as much. A mortgage rate of four per cent might sound low to those of us that can remember rates of 15 per cent but compared to what a bank pays to borrow the money, it’s pretty high. The banks call it a ‘repricing’ of home loans, which the RBA has said puts the implied spread on housing lending “higher than the previous peak in 2009”. This chart shows what that means:

See that gap between the red and purple lines in 2009, when the interest rate spread was about two per cent? There was some compression after the GFC but now look at the gap for 2016: it’s even higher. The banks are making a killing on mortgages, and that’s the primary reason for their growing profitability. This chart shows the dividend payout ratios of the big four banks over the past 10 years:

While there’s a fair bit of volatility from year-to-year, bank dividend payout ratios are pretty high. That’s bank boards succumbing to investor demands for yield but also having the profits to be able to do so. More recently, we’ve had the odd situation where banks are paying out huge dividends and then asking for it back via capital injections to support a massive growth in mortgage lending (and comply with new regulations, which we’ll get to). Here’s the chart:

Incredible isn’t it? Our banking system has become addicted to mortgage lending. But why wouldn’t it be? Mortgages are hugely profitable and the source of returns on equity that are pushing 20 per cent in some cases. Here’s resident economist Callam Pickering on the issue:

“By focusing on mortgages, banks have the ability to leverage themselves higher which boosts profitability and return on equity. During good times, the key to greater profitability for banks is to write as many new mortgages as possible; those banks that focus on business loans are likely to suffer by comparison. For the most part, the majors are holding just a few cents for each dollar of mortgages they hold on their books.”

Are the regulators worried? Sure they are. A bank must hold a certain level of capital for each loan it writes. The amount depends on the perceived risk of a loan. In the past, mortgage assets have been ascribed a very low weighting – that ‘few cents for each dollar of mortgages’ is no exaggeration – but last year’s Financial System Inquiry concluded banks needed to hold more. Last year, the four largest lenders raised a record $20 billion in equity capital to comply with these new regulations. And they may need a similar amount over the next two years.

Even so, bank system leverage, which some claim is as high as 41 times, is higher than I’d imagine most bank shareholders suspect. And mortgages are the reason for it.

By their nature banks are leveraged. But to achieve such high returns on equity banks are using even more of it. This chart shows where most of that funding comes from:

On the past 20 years bank there’s been a big shift away from domestic deposits towards offshore financing of loans. That makes sense: you can’t sustain a huge increase in mortgage lending from domestic deposits alone. That money has to come from somewhere. Let’s put all this together and see what it means for the local economy and bank investors.

First, that huge growth in mortgage lending shows up in household debt. LF Economics estimates that in the second quarter of 2015 Australia’s unconsolidated household debt was 123 per cent of GDP, the highest in the world. The euro area was half that, the UK 86 per cent and the US 79 per cent. That’s what a quarter century of uninterrupted growth does. Recessions purge bad debt from the system and economic growth hides it. When the tide goes out in the next recession, we’ll see who’s been bathing naked.

Second, the level of debt makes Australians especially sensitive to interest rate rises. Bond rates are telling us that there’s no prospect of that but if the markets are wrong it might not be pretty. Third, because of the increase in overseas bank funding, our banking sector is now more exposed to overseas developments, including currency movements. Our banking sector is anything but an island.

Now for the weird bit. After scaring the pants off you with a heap of worrying charts, I’m now going to say that for the first time in years I’m quite excited by their prospects. That’s reflected in our recommendation guides. Commonwealth Bank is a smidge above our Buy price of $70 and Westpac within reach of our $27 trigger price. ANZ isn’t far off and NAB joined our Buy List last week.

The reason is quite simple: Bank stocks have been crushed over the past year or so, which is to say most of the risks I’ve described are priced into their stock. It’s an important distinction. Risks are part and parcel of investing. As long as you’re being adequately compensated for them in the form of a cheaper share price, they’re manageable. I’m still not sure I’d buy the banks right now but I might be tempted should their share prices fall further.

That’s one way of managing the risk but there’s another. Banks are cyclical businesses but it’s easy to forget that fact when we haven’t had a recession for 23 years. Many investors have let their exposure to the sector creep up as a result. The best way of managing the threat of a highly leveraged banking sector, with highly leveraged customers, isn’t to sell out altogether but to make sure you’re not over-exposed. We recommend you keep your portfolio exposure to the banks to no more than 20 per cent and for conservative investors, much less than that.

Now for a bit of housekeeping. First, a big ‘thank you’ to James Kirby who has now taken up a full time position as editor of The Australian’s Wealth section. He’s been a fantastic editor of Eureka and leaves big shoes to fill. I’m sure he’ll put me straight if I stray off course, as I hope you will, too.

Second, over the coming weeks you’ll see more Intelligent Investor research on the Eureka website. As Editor Emma Koehn announced this week, we’re now covering Australia’s top 150 companies and expanding our small cap research team (welcome, Alex Hughes, who joins Jon Mills covering this area of the market). Expect more announcements on more stock coverage and portfolios soon. Finally, I want to assure readers that the much-loved Mitchell Sneddon is still with us, cracking jokes and writing some superb research, including a piece on LICs for Monday. Watch out for it and enjoy the weekend.


Readings & viewings

Australia’s six-week election campaign is now likely to go for years.

Polling guru Nate Silver says Donald Trump is substantially underperforming Mitt Romney in red states, with one even flipping to blue.

Tony Windsor wasn’t the only high-profile independent to lose last Saturday.

Economist and former Labor advisor Stephen Koukoulas gives his MVP award for election 2016.

Feel-good story of the week, a cab driver returns $187K he found in the back seat.

This is a good read on the UK’s Libor rigging scandal, for which three ex-Barclays traders were convicted this week – meanwhile, many senior banking officials didn’t have to face court.

The New York Times’ David Brooks says voters seem to be quietly turning to no-nonsense women as an antidote to the rise of crazy political candidates.

The Age’s Lucy Battersby welcomes a chaotic parliament, saying multi-party coalitions will take some of the ideology out of government.

The SMH’s Peter Hartcher goes one step further, asking, somewhat tongue-in-cheek, whether after the last six days we need any government at all?

Blockchain: the answer to life, the universe and everything?

This week also saw the delivery of the UK’s Chilcot Inquiry into the Iraq War decision-making process, which led to an apology – of sorts – from former PM Tony Blair. The Independent delivers the seven most important lines from the report, in video form.

Meanwhile, The Guardian’s Middle East reporter Martin Chulov said the Chilcot Report was largely met with indifference in Iraq, still reeling from last week’s suicide bombing in Baghdad, one of the most lethal since the invasion.

The Conversation looks at Chilcot’s lessons for Australia.

This one’s a bit belated, but argues forcefully that talk of “too much democracy” after Brexit is a worrying trend. From Rolling Stone’s gonzo-style correspondent Matt Taibbi.

Here's a brilliant visualisation of wealth inequality in America – looking at actual numbers, rather than people’s perceptions.

This article highlights how the volatility gap between blue-chips and small cap stocks seems to have all but disappeared in recent months, at least in the US.

The story of a Welsh town that had everything to lose from Brexit – but voted to leave the EU anyway.

For the first time astronomers have found a world that tracks round three stars – meaning some days last longer than a human lifetime.

Radio National this week spoke to one of the German journalists who revealed the Panama Papers tax haven scandal. Apparently there’s a lot more to come out.

Australian-born composer and pianist Percy Grainger was born on this day in 1882. Known for his experimental compositions and renewing interest in British folk music during the first half of the 20th century. Here’s a recent version of his “Molly on the Shore”.

Speaking of folk music, another birthday today is American alternative-folk musician Beck’s 45th. Here’s his gentle ‘Where it’s at’, which peaked at No.5 on the Australian charts in 1996 as well as earning him a Grammy for Best Male Rock Vocal Performance.

Last week

Shane Oliver, AMP

Investment markets and key developments over the past week

Wariness returned to investment markets in the past week led in part by worries about Eurozone banks – particularly Italian banks. This saw most share markets give up some of their gains from the previous week, safe haven demand push bond yields even lower and the US dollar, yen and gold up. Worries about Australian banks – on the back of global bank weakness, APRA indications that further capital raising may be required, the chance of a royal commission into banks and the shift in Australia’s and banks’ credit rating outlook to “negative” by Standard and Poors – also weighed on the Australian share market. The rising USD also weighed on oil and metal prices and saw the Chinese renminbi fall to its lower level since 2010. The Australian dollar was little changed.

Fears around a recession in the UK following the Brexit decision continue to build with business confidence falling sharply. Clearly UK business is concerned about their continued access to EU markets. These concerns have also hit the UK commercial property market with several unlisted property funds halting redemptions as investors have sought to withdraw their funds in the face of a bleak outlook for the UK property market if businesses decide to relocate operations to Europe. While the Bank of England cut banks’ capital requirements and the continuing plunge in the value of the British pound should help, it’s doubtful this will be enough to stop a recession later this year. Bear in mind though that the UK economy is only 2.5 per cent of global GDP. It’s also worth noting that the problem with British property funds are reflective of a specific problem in the UK post Brexit. It’s not indicative of a problem with global commercial property markets generally.

But will Brexit even happen? Given the Bregret and mayhem in the UK there is some chance that Article 50 of the Lisbon treaty, which governs exits from the EU will never be triggered. This could happen say if the new conservative leader waits till next year to trigger Article 50 by which time a recession could have moved popular opinion against Brexit or alternatively if a new election is called which becomes another defacto referendum on Brexit. It’s also possible that the UK does trigger Article 50, but then in negotiating with the rest of the EU concludes it doesn’t want to go. While once triggered Article 50 means no going back it’s likely that in this circumstance the EU will find a way to keep the UK in. All of this has a long way to play out – indeed it will be several months even before a new Conservative Party leadership is in place.

Of course, the real issue for the global economy and investment markets is the impact on Europe and the risk of a domino effect of exiting eurozone countries. But if Britain ultimately doesn’t leave or leaving is demonstrated to be more trouble than remaining then the risk of a domino effect will be much reduced.

But back to the present, in the eurozone the main focus regarding post Brexit risks in the past week relates to European – mostly Italian – banks. These have been weakened by years of slow growth, ultra-low interest rates and tighter regulatory conditions. These risks preceded Brexit but the Brexit scare has refocused attention on them by pushing down bank share prices which in turn makes it harder for banks to raise capital. Italian banks are arguably most at risk with the Italian government wanting to recapitalise some of them, but the European Commission preferring a bail-in from creditors. Not recapitalising them risks slower bank lending, slower growth and higher unemployment and hence a greater risk of support for a move out of the Eurozone in countries like Italy. At this stage we are a long way from this and some sort of muddle through solution will likely be found. But of course it won't stop investors worrying about it in the interim.

On the positive side of the equation its notable that Italian and Spanish bond yields remain around record lows, suggesting the threat of ECB intervention is working, the latest rise in the value of the USD and associated fall in the Chinese renminbi has not been associated with the panic around capital outflows from China that we saw earlier this year, and commodity prices continue to hold up reasonably well which may be a good sign for global growth. But again its early days yet and one risk worth keeping an eye on is that of a further rise in the USD. Upwards pressure on the USD is a real risk given the ongoing risk of safe haven flows out of Europe at the same time that the US economy looks to be doing okay which suggests a much greater chance of a Fed hike this year than the 12 per cent probability that the US money market is assigning. Another break higher in the USD would be bad for oil and other commodities, the emerging world and the Chinese renminbi.

In Australia, it’s looking likely that the Coalition will attain a majority of seats following the Federal Election or if not form government with independents like Bob Katter. The issue of course is that the Senate is likely to be less friendly than over the last few years which will mean that a Coalition Government will have little chance of passing key aspects of this year’s Federal Budget including its company tax cuts (at least not for large companies), some of its superannuation changes and the still to be passed savings from the 2014 budget. The likelihood would be more slippage in the return to budget surplus. Serious economic reform looks off the agenda.

Reflecting the risk of yet more budget slippage its little surprise to see the ratings agencies getting tetchy, with Standard and Poors putting Australia’s sovereign rating – and flowing from this the major banks – on negative outlook. This of course does not mean a downgrade is inevitable but with the new parliament “unlikely to legislate savings or revenue measures sufficient ... for the budget deficit to narrow materially” [in the words of S&P] I would say that it’s probable. So far the financial markets have taken the move to negative outlook calmly perhaps because it has long been talked about. In theory a ratings downgrade should mean higher interest rates as foreigners demand a higher yield on federal debt and this flows through to state debt, banks, corporates and potentially to out of cycle mortgage rate hikes for households. In reality this impact may be muted. The US in 2011 and the UK last week actually saw bond yields fall after ratings downgrades and many lower rated countries borrow more cheaply than Australia (e.g. Italy and Spain). And in any case the RBA can still offset higher mortgage rates with another interest rate cut.

Rather the biggest implication from the threat to our AAA rating is what it tells us about policy making in Australia today. Australia worked hard reforming the economy after last being downgraded in 1986 and won a AAA rating back in 2002. Losing it again would signal we have become unable to control public spending, that we have lost our way to some degree after the hard work of the Hawke/Keating & Howard/Costello years.

Major global economic events and implications

US economic data was good with the ISM non-manufacturing index rising to a solid 56.5 in June, the trade deficit rising by less than expected and jobs data being strong. While the Fed will need clear evidence that Brexit related risks are minor and that US growth has picked up before moving again, we remain of the view that it will raise rates again before year end. The US money markets’ assessment of just a 12 per cent chance of a hike this year is way too pessimistic and will likely move back up, which in turn will place upwards pressure on bond yields at some point by year end.

Japan’s services PMI fell to just 49.4 in June and along with the manufacturing conditions PMI is consistent with very weak conditions overall in the June quarter.

China’s services PMI improved in June, consistent with okay growth with services continuing to lead over manufacturing.

Australian economic events and implications

In Australia, the RBA opened the door to another rate cut indicating that it was awaiting “further information” which is presumably a reference to June quarter inflation data later this month. We remain of the view that the RBA will cut rates again as the risks to inflation are on the downside, the risks to global and Australian growth are still on the downside (with Brexit and the messy Australian election not helping) and the Australian dollar is still too high. We are continuing to allow for two more 0.25 per cent rate cuts this year, the first in August.

Australian data was on the soft side with a fall in building approvals and slowing momentum in retail sales but ANZ job ads still pointing to reasonable jobs growth. National house price momentum slowed in June, but remains lopsided with strength in Sydney and Melbourne but four capitals seeing falls.


Next week

Savanth Sebastian, CommSec

Jobs, jobs, jobs

Another big week of economic events is in prospect in Australia and overseas. In Australia the focus will be on the labour market. In China, trade, inflation, and broader economic activity indicators are released throughout the week. In the US, data on retail sales and consumer prices are the highlights.

In Australia, the week kicks off on Monday with data on housing finance slated for release. The data could still be classified as somewhat old news given that it is for the month of May – when the Reserve Bank cut the cash rate. However more importantly the rate cut would not have filtered through to mortgage rates till late May. It is likely housing activity will receive a further boost in coming months. For the record, based on data from the Bankers Association, we expect that loans for owner occupation (loans for people wanting to live in homes) fell by 2.7 per cent in May. And the total value of loans (owner-occupier and investment) was probably flat in May after falling by 1.8 per cent in April.

On Tuesday the National Australia Bank business survey is released alongside the Reserve Bank data on credit and debit card lending. The business survey covers key business indicators, a reading on business confidence as well as gauges on prices, wages and finance. The indicators of confidence and conditions have showed encouraging improvement since the Budget, with a particular focus on a lift in profitability. However given the uncertainty of the Federal Election result and likelihood of a minority government, it is likely to drift lower.

Also on Tuesday ANZ and Roy Morgan release the weekly consumer sentiment survey, while the Reserve Bank Head of Financial Stability, Luci Ellis, delivers a speech at the Sydney Banking and Financial Stability Conference at the University of Sydney.

On Wednesday the monthly Westpac consumer confidence index is released. The weekly survey has shown that households were in a happy place, with confidence levels holding a couple of point below recent 2½-year highs. However it is likely that both readings will drift lower given the uncertainty surrounding the latest Federal Election result.

Also on Wednesday, the Bureau of Statistics (ABS) will release lending finance figures – includes housing, personal, business and lease loans. The April lending statistics showed a modest 1.4 per cent fall to $70.8 billion – easing further away from the 7½-year high ($75.1bn) in September last year.

On Thursday the ABS releases the monthly employment figures. Figures have been somewhat patchy in recent months with the job market seemingly pausing for breath after out-sized increases in late 2015. The focus will be on the shift between full-time and part-time employment, with the later gaining ascendancy in the past few months. Overall we expect that the number of jobs rose by around 5000 in June. And while the participation rate may have held steady at 64.8 per cent, it is unlikely to stop the unemployment rate lifting modestly from 5.7 per cent to 5.8 per cent.

Spotlight on US and Chinese data

So-called ‘top shelf’ economic indicators are released in China in the coming week. And in the US the focus will be on the retail sales and consumer price data released on Friday.

China will actually kick off proceedings over the week – with the release of inflation data on Sunday. Similar to what has been seen across the globe, inflation in China remains benign. In fact producer prices (business inflation) continues to suggest a deflationary environment, down 2.8 per cent over the year.

In the US, on Monday the National Federation of Independent Business releases its Business Optimism index alongside the JOLTS survey of job openings.

On Tuesday, data on wholesale inventories and sales are slated for release.

On Wednesday the usual weekly data on home purchase and refinancing is issued alongside the monthly budget statement and import price index. Also on Wednesday the US Federal Reserve releases the Beige Book the indicator is a ‘qualitative’ survey of economic conditions across 12 Fed districts released ahead of Federal Reserve interest rate decisions.

On Thursday, the weekly figures on claims for unemployment insurance are released together with the June data on producer prices. The producer price index (business inflation) is expected to remain tame. Analysts expect a 0.1 per cent rise in the “core” rate (excludes food and energy).

And we have to wait till Friday for the key ‘top shelf’ indicators for the week – namely retail sales and consumer prices. Economists tip a solid 0.2 per cent increase in June retail sales after the 0.5 per cent lift in May. No doubt fluctuating petrol prices are having a significant influence on the results. Encouragingly core sales (sales less autos and gasoline) are expected to have lifted by 0.4 per cent in June.

The consumer price index is tipped to lift by just 0.3 per cent in June. Excluding food and energy prices are expected to rise by only 0.2 per cent. Clearly inflation remains well contained and should ensure no rush by the Federal Reserve to lift rates.

Also on Friday, data on business inventories is issued, alongside industrial production, and the University of Michigan confidence reading.

In China on Friday, key ‘top shelf’ indicators are also issued, namely retail sales, production and investment. Annual growth rates are slowing, but that is ‘normal’ for a maturing economy. Also trade, lending and money supply data is between Sunday and Wednesday.

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