One day after all three US indexes hit record highs for the first time since December 31, 1999, and global stocks headed for the biggest weekly gain in a month as gains in oil prices bolstered investor confidence, US equity index futures, European stocks and Asian equities are little changed after the Nikkei jumped on the back of a Yen weakness, while China reported disappointing economic data and the PBOC suggested that the flood of new debt is slowing which pushed Chinese stocks higher by 1.6% on hopes of more stimulus.

Ahead of today’s main economic event, the US July retail sales report due out at 8:30 ET, China reported key economic data on retail sales, industrial production and fixed investment, all of which missed expectations. The summary:

• Industrial production (IP): +6.0% yoy in July, missing consensus of +6.2%; ; June +6.2%
• Retail sales: +10.2% yoy in July, missing consensus: +10.5%; June: +10.6% yoy.
• Fixed asset investment (FAI): +8.1% ytd yoy in July, missing consensus: +8.9%); June yoy: +7.7%.

As Goldman noted, July activity data were all below expectations, with the NBS blaming both flooding and warmer weather for the disappointing data. Fewer working days this July compared with last July may also contributed to the weaker activity growth. Sequential IP growth slowed significantly from the high level in June. Export delivery, which was a main support of headline IP growth in recent months, decelerated in July (mom ann export delivery was -0.1% in July, vs +18.7% in June). Domestic demand was weak as well. FAI growth was a major disappointment. Except for the manufacturing sector, FAI growth in almost all sub-sectors moderated: Infrastructure FAI growth was 11.5% yoy in July, vs 21.6% yoy in June, and real estate FAI was 1.2% yoy, vs 3.6% yoy in June.

IP growth decelerated in July

FAI growth was very weak in July, especially in the private sector

Investment in the doldrums

Less aggressive policy support and the persistent floods impacting both southern and northern China made negative contributions to growth. There was also a small scale production and construction restriction around Chengdu for the ministerial level G20 Summit. High temperatures had mixed contributions to growth – on one hand, high temperatures supported utilities output (see EM Macro Daily – China: Cool weather likely contributed to weak August activity growth, Oct 9, 2014) on the other hand, it may discourage outdoor activities such as construction.  Going forward, Goldman said it expected August and September growth to be sluggish, partially affected by the factories and construction site shutdowns around the G20 meeting in Hangzhou. Renewed policy easing to keep GDP growth in the target range is a strong possibility once this slowdown becomes more obvious.

Also overnight China reported weaker than expected new loan and Total Social Financing data,with the former rising CNY 463.6BN, below the 860BN expected, and the latter barely higher at CNY487.9BN, also well below the CNY1 trillion expected.  As a result M2 rose 10.2%, below the 11.1% expected, if still roughly double the growth rate of M1, as China’s liquidity trap continues to grow. Also as a result, Chinese bond yields dropped to the lowest since at least 2006. “China credit data will likely remain at a low level in coming months due to sluggish investment and stricter shadow banking regulation,” said Le Xia, chief Asia economist at Banco Bilbao Vizcaya Argentaria in Hong Kong. “The central bank will take action if it slips further.”

It wasn’t just China reported weaker data: earlier today Italy’s economy stagnated in the second quarter in a major blow to prime minister Matteo Renzi’s government, which has been struggling to revive the country’s faltering economic recovery. Q2 GDP was unchanged on expectations of a 0.2% bounce.  As the FT’s James Politi reported yesterday, Mr Renzi, who took office in 2014, is considering fresh stimulus to try and boost Italy’s economic recovery and to win over voters ahead of the November poll, including pension increases and additional funds for the poor.

The flipside was Germany, where Q2 GDP rose 0.4% Q/Q, double the expected 0.2%.  This takes the year-on-year growth for Europe’s largest economy to 1.8% on a seasonally adjusted basis, again beating expectations for 1.4% growth.

The full breakdown of today’s European GDP figures is shown below, via the FT.

Then again, in recent years economic data has been all but useless, and so the momentum continues, with the MSCI All Country World Index holding near a one-year high on Friday, while U.S. equity index futures were slightly higher changed after all three key American indexes rallied to records on Thursday. Shanghai shares climbed the most in a month, buoyed by speculation of takeovers in the property industry and hopes for more stimulus. Crude headed for its biggest weekly advance since April, trading near $44 a barrel, amid speculation major producers will work together to stabilize prices.

The schizophrenic narrative continues with equities and bonds both higher on the week, buoyed by what Bloomberg calls “optimism central banks will retain or enhance supportive policies as the economy expands, but at a subdued pace” even as stronger US data hints at an upcoming rate hike, also interpreted as bullish by the market. Data Friday showed a 0.3 percent increase in euro-area gross domestic product, with growth in Italy grinding to a halt. Monetary authorities in Australia, New Zealand and the U.K. cut benchmark interest rates to records this month, while the Bank of Japan and European Central Bank are using unprecedented stimulus to spur expansion. In oil, speculation that informal OPEC talks next month will stabilize the market buoyed prices.

“The pessimism that had overwhelmed us at the start of the year and immediately post-Brexit is lifting,” said Nicolas Lopez, head of research at MG Valores in Madrid. “We should continue to see gains.”

MSCI’s global stocks gauge was little changed as of 10:40 a.m. London time, heading for a weekly advance of 1.2 percent.

In Europe, A.P. Moeller Maersk A/S rose 3.5 percent after Denmark’s biggest company said it increased efficiencies in the second quarter, reporting earnings before interest and tax of $656 million, beating an estimate of $551 million. The Stoxx Europe 600 Index was little changed overall, after Thursday recouping its pre-Brexit level. The volume of shares changing hands was 41 percent lower than the 30-day average at this time of day. Nordstrom Inc., the largest U.S. luxury department-store chain, surged in late trading after posting second-quarter profit that topped analysts’ estimates, helped by higher sales at its off-price Rack chain and its Anniversary promotional event.

The MSCI Emerging Markets Index climbed 0.1 percent, extending the advance since Aug. 5 to 2.6 percent in the fifth week of gains and the longest run since March 2014. Chinese stocks led the advance on Friday, with the Shanghai Composite Index climbing 1.6 percent as stake purchases by China Evergrande Group fueled optimism that the pace of merger activity in the property industry will accelerate.

In rates, U.K. gilts held a fourth weekly gain, as the Bank of England’s first week of its expanded bond buying plan drew to a close. The central bank has left its quantitative-easing shopping list broadly unchanged for next week, even after it failed to attract enough sellers of gilts due in more than 15 years to hit its purchase target at an operation on Tuesday. The yield on 10-year gilts touched a record-low 0.51 percent on Thursday, and has fallen 12 basis points since Aug. 5. Spanish and Italian government bonds also headed for their fourth weekly advance. The yield on Spain’s 10-year security was at 0.95 percent, after touching a record-low 0.913 percent on Thursday.

Market Snapshot

• S&P 500 futures up less than 0.1% to 2184
• Stoxx 600 down less than 0.1% to 347
• FTSE 100 up 0.1% to 6923
• DAX down 0.3% to 10707
• German 10Yr yield down less than 1bp to -0.1%
• Italian 10Yr yield up less than 1bp to 1.06%
• Spanish 10Yr yield up 2bps to 0.94%
• S&P GSCI Index down 0.2% to 348.9
• MSCI Asia Pacific up less than 0.1% to 139
• Nikkei 225 up 1.1% to 16920
• Hang Seng up 0.8% to 22767
• Shanghai Composite up 1.6% to 3051
• S&P/ASX 200 up 0.4% to 5531
• US 10-yr yield down 2bps to 1.54%
• Dollar Index up less than 0.01% to 95.86
• WTI Crude futures up less than 0.1% to $43.50
• Brent Futures down 0.2% to $45.94
• Gold spot down 0.1% to $1,337
• Silver spot down 0.8% to $19.81

Top Global News

• S&P 500, Dow, Nasdaq Hit Records Together First Time Since 1999: All 3 U.S. stock benchmarks rose together to record highs for the first time in 16 years amid surprising earnings.
• HPE Buying Silicon Graphics in Deal Valued at $275m: HPE expects deal to be earnings neutral in first full year, will add to profit thereafter.
• U.S. Banks Said to Ask Fed for 5 Yrs for Volcker Compliance: Reuters: Period would start next year, run through 2022; banks incl. Goldman, Morgan Stanley, JPMorgan requested.
• Viacom CEO Dauman, Redstones Restart Talks on Co. Control: NYP: Several Viacom board members have moved closer to supporting move to name new CEO.
• Russian Hackers of DNC Said to Nab Secrets From NATO, Soros: Security experts now say DCLeaks.com shows marks of same Russian intelligence outfit that targeted Democratic political organizations.
• Wall Street Can’t Agree on When to Halt U.S. Stock Market: Major sticking point remains, according to official who spoke at an event hours after NYSE, Nasdaq, Bats Global Markets announced changes.
• Russia Warns of Consequences From Deaths as Ukraine on Alert: Putin said Ukrainian intelligence officers killed 2 Russian servicemen during covert operations in Crimea.

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Looking at regional markets, we find Asia traded higher following the record high closes across US indices as gains in energy underpinned risk-appetite. Nikkei 225 (+1.1%) returned from holiday to spearhead the advances as a weaker JPY lifted exporter sentiment. ASX 200 (+0.4%) was led by the energy sector after WTI prices rose above USD 43/bbl on yesterday’s comments from Saudi’s Energy Minister. Chinese markets are positive with the H ang Seng (+0.8%) and Shanghai Comp (+1.6%) conforming to the upbeat tone despite a slight miss on July Retail Sales and Industrial Profits, as the disappointing figures adds to calls for supportive measures while the PBoC also switched to a net weekly injection in its liquidity operations. Finally, 10yr JGBs were marginally lower amid increased demand for riskier assets, while the BoJ was also absent in regards to its bond buying operations.

Top Asian News

• China Stability Falters as Factory Output, Investment Slow: Retail, investment, factory output all miss analyst forecasts
• Yuan Free Float Seen a Decade Away as China Keeps Strict Control: True reserve currency needs free cross-border flows, JPMorgan says
• Malaysia’s Growth Slows as Pressure to Add Stimulus Increases: Govt expects economy to grow between 4% and 4.5% in 2016
• Cheung Kong’s Victor Li Says Open to Sale of City Buildings: CK Property will keep Cheung Kong Center, deputy chairman says
• JPMorgan to Liquidate Japan Fund After ‘Significant’ Redemptions: Assets in Japan Market Neutral Fund fell to $17m
• Lurking Credit Risks Make Babson Wary of Surging Indian Bonds: Little differentiation between strong and weak issuers, Posch says
• SBI Profits Drop for Third Quarter as Bad-Loan Provisions Surge: Quarterly net income 25.2b rupees vs est. 25b

The final European session of the week has kicked off in a subdued manor, with equities trading without direction (Euro Stoxx: -0.1%) amid particularly light newsflow. Moller Maersk are the outperformer so far this morning in the wake of their pre-market earnings report, with little else of note happening on a stock specific basis. Fixed income markets have also traded in a relatively tight range, with Bunds hovering above 167.50 by mid-morning, paring early modest losses to trade relatively flat while the font end lags.

Top European News

• Italian Economy Unexpectedly Stagnates in Threat to Renzi: 3Q GDP stalled unexpectedly in 3Q.
• German Economy Slows Less Than Forecast as Exports Pick Up: GDP rose seasonally-adjusted 0.4% in 3Q.
• Negative Rates for People Arrive as German Bank Gives In: From Sept., for savings >EU100k, a Raiffeisen bank will take back 0.4%.
• Datwyler Says Still Reviewing Options for Pursuit of Premier: Datwyler said it’s still considering whether to pursue a takeover of Premier Farnell after U.K. co. agreed to GBP691m counter bid from Avnet Inc.
• Maersk Gains as Company Meets Tough Market With Cost Cuts: Co. met punishing market conditions with cost cuts in order to create a leaner business.
• Restaurant Group Soars After Ousting CEO for Ex-Paddy Power Head: Replaces CEO Danny Breithaupt with ex-Paddy Power head Andy McCue.
• AstraZeneca Rides High, Fueled by Brexit, Bristol-Myers Failure: Drugmaker, once deemed a laggard, has rallied 37% since its June 14 low.
• U.K. Stocks More Alluring Than Ever as BOE Sinks Gilt Yields: Cos. in FTSE All-Share Index return 3.8% in divs., near all-time high vs 10-year gilts.
• Eurostar Scraps Eight Train Services as RMT Union Talks Kick Off: Service canceling 8 trains from Fri.-Mon. as talks continue with U.K. labor union RMT in protest about working hours.

In Commodities, crude added 0.8 percent to $43.83 a barrel in New York, headed for a 4.9 percent weekly jump. Informal discussions being held next month between members of the Organization of Petroleum Exporting Countries and non-OPEC producers may include possible action to stabilize the market, Saudi Arabia’s Energy Minister Khalid Al-Falih said in a statement, according to media reports, including Reuters. Global markets will continue to rebalance this year, the International Energy Agency said.“The Saudi comments gave the market some life,” said Jonathan Barratt, chief investment officer at Ayers Alliance Securities in Sydney. “The talk is all about pushing the price higher and the market will speculate on whether they can actually pull a deal together. Calls from the IEA that the glut will start to shrink and consumption will pick up are also supportive.” Copper fell 0.7 percent in London, trimming its weekly gain to 0.5 percent. Nickel lost 1.8 percent and aluminum was little changed.

In FX, after yesterday’s USDJPY jump it has been a quieter, if choppy session in FX, with some familiar drivers early on that saw GBP under pressure again as the EUR cross rate returns through 0.8600 again while Cable is getting sold off ahead of the 1.3000 mark. UK construction output was a little mixed, though net in line with forecasts, so traders continue to trade off the longer term theme of uncertainty and bearish post Brexit sentiment. JPY weakness over the last 24 hours has been risk driven, but above the 102.00 mark we are running into resistance, with the lack of momentum down to the pre US retail sales caution — little else. A key driver of this positivity is the revival of Oil prices, with WTI back in the mid $43.00’s to bolster CAD and MXN — the latter posting strong gains against the USD in recent weeks. USD/CAD is still holding off support in the low 1.2900’s, but look heavy. Brent is now through $46.0 and along with the stronger inflation data in Norway has given the NOK a much firmer tone of late, with the EUR cross rate now eyeing the mid April lows just under 9.1500, while USD/NOK is sub 8.1000. SEK is also firmer these days but underperforms the NOK. AUD and NZD are out of the limelight for now, but the pullbacks look corrective for now — certainly in the case of AUD.

On today’s calendar we will sees the first real potential market moving US data since last Friday’s payroll. The main releases are July retail sales (+0.4% mom expected; +0.6% previous) and last month’s PPI number (+0.1% mom expected; +0.5% previous).

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Bulletin Headline Summary from RanSquawk and Bloomberg

• European equities enter the North American crossover relatively mixed as participants await tier 1 US data releases
• Elsewhere, newsflow remains light with Eurozone GDP releases doing little to inspire price action
• Looking ahead, highlights include US PPI, retail sales and U. of Michigan Sentiment
• Treasuries rise in overnight trading, commodities slide and global equities head for biggest weekly gain in a month with MSCI All Country World Index near a one-year high.
• China’s recent economic stabilization faltered in July as factory output, retail sales and investment all slowed, while the broadest measure of new credit rose the least in two years
• Hong Kong’s economy grew at the fastest pace since March 2011 as a pick up in exports helped offset sluggish retail sales in the city. GDP expanded 1.6% in 2Q, the government said
• Negative rates have arrived for German depositors. This week, a German cooperative savings bank in the Bavarian village of Gmund am Tegernsee — population 5,767 — said it’ll start charging retail customers to hold their cash
• JPMorgan Chase’s investment unit said it will liquidate a Japan-focused fund after a surge of investor withdrawals following poor performance
• Euro-area growth slowed in line with economists’ forecasts in the second quarter, leaving the currency bloc vulnerable to any fallout from Britain’s vote to leave the European Union
• As the Bank of England seeks to ease Brexit angst by injecting money into the U.K. economy, pension managers and insurers are finding themselves caught up in a vicious circle as the bank’s QE program is crushing yields
• Italy’s GDP unexpectedly stalled in the second quarter, which will further weigh on Prime Minister Matteo Renzi as he prepares for a referendum on which he has staked his political future
• U.S. profit forecasts have turned negative for 2016 as the latest earnings season has failed to stem downgrades from analysts

DB’s Jim Reid concludes the overnight wrap

Hope has been dashed a touch in China overnight with generally a soft monthly data dump. Industrial production rose 6% YoY (6.2% expected), Retail sales climbed 10.2% YoY (10.5% expected) with fixed-asset investment increasing 8.1% YTD YoY (8.9% expected) although property development investment seemed to firm. The positive tone from yesterday is having the most influence on Asian markets though even if China is underperforming a touch. The Nikkei (+0.97%), Hang Seng (+0.77%) and the Shanghai Comp (+0.24%) are all higher as we type. Oil is another +0.6% higher this morning after a bumper day yesterday

Before moving on here’s a question for a quiet August Friday morning. What AAA investment at the start of 2016 that has been downgraded over the course of the year has returned over 54% YTD? The answer is of course the 50 year Gilt which remarkably has returned nearly 32% alone since the Brexit referendum. 2016 has provided the sort of return you’d normally expect from reinvesting 13 years of coupons. So if you were lucky enough to just invest in 50 year Gilts at the start of January you might as well sell and do nothing until the market catches up with you in 2029!!

Having said that you may be missing out on even more returns in the short-term as the long-end Gilt rally continues even with global Government bonds ending their 3 day rally yesterday. German and US 10Y yields ticked up by +2bps and +7bps respectively. Fed expectations repriced a bit more hawkishly after an up and down week post San Francisco Fed’s Williams’ reiteration of support for a rate hike this year. Higher import prices (see below) and higher Oil both contributed.

The UK yield curve flattened with yields rising up to the 10Y point (2Y: +5bps; 10Y: +1bps) while longer dated yields (15+ years) fell to new lows (15Y: -2bps; 30Y: -3bps). The 30 year Gilt has now returned 34% this year. Even 30 year Bunds are up 29%.

Before we look at the rest of markets it’s worth pointing out that after a quiet data week, today sees the first real potential market moving US data since last Friday’s payroll. The main releases are July retail sales (+0.4% mom expected; +0.6% previous) and last month’s PPI number (+0.1% mom expected; +0.5% previous). DB’s Chief US Economist Joe LaVorgna expects an above consensus headline retail sales number with growth at +0.9% mom, noting that the 6%+ increase in July motor vehicles sales (17.77M vs. 16.69M) bodes well for headline retail sales. He also notes that, while the retail sales number will likely overshadow the PPI number, the healthcare component of the latter is a key input into the core PCE deflator and should be watched.

Global equities rallied yesterday to rebound from Wednesday’s dip. European markets were broadly in positive territory with the STOXX (+0.78%), FTSE (+0.70%) and DAX (+0.86%) all hitting new post-Brexit highs. Over in the US the S&P500 (+0.47%) jumped to a fresh new all-time high. In fact the S&P500, Dow and Nasdaq all hit record closing highs on the same day for the first time since 1999! What could possibly go wrong? Oil was one of the main stories with WTI up nearly +4.5% as the optimism from earlier in the week about an Oil producers side meeting at next month’s energy meeting in Algiers resurfaced. Saudi Arabia’s energy minister suggested that the Kingdom could be part of some kind of stabilsation accord. Although we’ve been here before, investors were obviously less keen to be short with these comments backing up speculation from earlier in the week.

Elsewhere European credit markets were a bit more subdued, with iTraxx Main flat on the day while Crossover (+1bps) edged marginally wider. US markets however performed better with CDX IG and HY tightening by -1bps and -5bps respectively on the day.

Taking a look now at yesterday’s data, over in Europe we saw the final July inflation numbers for France print in line (-0.4% mom vs. -0.4% expected) while Italy slipped further into deflationary territory (-0.2% YoY vs. -0.1% expected; -0.1% previous).

Over in the US we saw the initial jobless claims data for the first week of August come in pretty much in line with expectations (266k vs. 265k expected; 267k previous) but still around the multi-decade lows that highlight the tightness in the job market. Import price inflation for July did not fall into negative territory as expected (+0.1% mom; -0.4% mom expected) but did slide from a month ago (+0.6% previous). The low import price inflation can primarily be attributed to a stronger dollar and dropping oil prices, and will likely contribute to keeping consumer price inflation low in the near term as well.