Monday starts slow. The China economic data showed moderation in the growth for 2Q and outlook for 3Q. China downplays the “Made in China 2025” policy to build common cause with the EU on trade in its summit today. Both pushed for US involvement in retooling the WTO. The Trump/Putin summit has seen the US President try to lower expectations – he just wants to talk – but the agenda seems obvious Iran, Syria, Ukraine, arms control and meddling in US elections. Trump caused early discomfort with his labeling the EU a “foe” in the CBS interview. UK PM May is pushing for a vote on Brexit today with threats from hardliners, 48 hard Brexiteers is enough to trigger a leadership challenge in the Tory Party. All that geopolitical noise and nothing major happened. Shares in Asia are lower thanks to weaker China GDP mostly linked to weaker investment growth and deleveraging as the PBOC keeps liquidity tight. The European markets focus on earnings – Deutsche Bank released early and beat – but that isn’t enough with trade fears and stronger EUR. The USD is lower today and that is the signal for moderation of the bearish story as EM and EUR bounce a touch but this could merely be the slow Monday moderation of trend that we always expect in the summer. As for the reality of the rest of the week, its about Powell and the US data – today’s retail sales, later the industrial production and housing starts. Growth is the key driver of the day and that matters the most in moments of quiet moderation. The odd part of this maybe in the oil price drop rather than the USD stall, with energy signally less global demand along with more geopolitical noise (Trump threatens to use the SPR). Watching $67.76 for key support – the June 25 highs.

Question for the Day: Does the winner take all drive the productivity problem? If you ask economists, the biggest problem in the last 10 years for developed markets has been the notable drop in productivity. This matters because the potential growth of the world is about demographics and productivity – with the West population aging forcing productivity to do the heavy lifting. The trouble is that the innovation from technology suggests we are more productive not less. Just ask anyone reading emails and dealing with work issues 24/7 today. As the WSJ notes in a good read today on an OECD report – “Researchers have blamed the productivity slowdown on a range of factors including ultra-low interest rates, mismeasurement of output in a digital world and a decline in humanity’s innovative prowess. Most theories don’t seem to explain the whole puzzle.”

According to data on advanced economies from the Organization for Economic Cooperation and Development, the most productive 5% of manufacturers increased their productivity by 33% between 2001 and 2013, while productivity leaders in services boosted theirs by 44%. Over the same period, all other manufacturers managed to improve productivity by only 7%, while other service providers recorded only a 5% increase. “The laggards are increasingly falling behind,” says Dan Andrews, the economist who led the OECD’s research into diffusion.

What Happened?

• China 2Q GDP rose 1.8% q/q, 6.7% y/y after 1.4% q/q, 6.8% y/y/ - as expected – slowest since 3Q 2016. China in March set GDP target growth for the whole year at 6.5%. In further sign of a slowdown, surveyed urban unemployment rate rose to 4.8% in June, matching that May, higher than the 4.5% target for the whole year. The value added of the primary industry was up by 3.2 percent; the secondary industry by 6.1 percent; and the tertiary industry by 7.6 percent. The value added of the primary industry was up by 3.2 percent; the secondary industry by 6.1 percent; and the tertiary industry by 7.6 percent

• China June retail sales rose 0.7% m/m, 9% y/y after 8.5% y/y – more than 8.8% expected. The year-to-date sales moderate to 9.4% from 9.5%. Urban sales jumped to 8.8% from 8.3% y/y while rural rose to 10.4% from 9.6% y/y. Food and grain rose to 13% from 7.3%, oil and products rose to 16.5% from 14% y/y while housing-related categories also bounced – furniture 15% from 8.6%, building/decorations 7.2% from 6.5%, home appliances 14.3% from 7.6%. Only big drop was in autos -7% after -1% y/y. A NBS spokesman said consumption is dampened by slowing auto sales, though he expects further easing on imports may stimulate spending in H2.

• China June Industrial Production up 0.4% m/m, 6% y/y after 6.8% y/y – weaker than 6.5% y/y expected. The year-to-date moderates to 6.7% from 6.9% y/y. Mining slowed to 2.7% from 3.0%, Manufacturing to 6% from 6.6% y/y and Water/electricity slowed to 9.2% from 12.2% y/y. By major product, cement was 0% from +1.9% y/y, Autos 5.3% from 9.5% y/y, steel 7.2% form 10.8% y/y, coal 1.7% from 3.5% y/y and electricity 6.7% from 9.8% y/y. By industry, only general equipment rose to 6.8% from 6.6% and non-metal minerals 3.7% from 2.6%. Textiles also moderated to -0.1% from -1.5% y/y.
• China June Fixed Investment slows to 6% ytd from 6.1% ytd - as expected. On a monthly basis, it accelerated to 0.48% in June from 0.47% in May. It was the slowest Q2 FAI growth in history since the data started to be compiled in 1992. But the NBS stressed the investment will remain growth at a fast pace, as the infrastructural investment is expected to be stable. Property investment slowed to 9.7% in 1H from 10.2% in Jan-May, as the government vowed not to ease restrictions placed on the sector prone to speculation. However, growth may not slow further as NBS spokesman said real estate investment in 2H will keep a "relatively fast" growth.
• India June WPI rises to 5.77% y/y after 4.43% y/y – more than 4.93% expected.  Food rose 1.1% y/y while non-food rose 2.9% y/y. Energy rose 8.1% y/y.
• Eurozone May trade surplus E16.5bn after E18bn – less than E19.7bn expected.  Exports up 0.2% m/m, -0.8% y/y to E189.6bn while imports up 0.9% m/m, +0.7% y/y to E173.1bn.

Market Recap:

Equities: The S&P500 futures are off 0.1% after Friday’s 0.11% gain. The Stoxx Europe 600 is off 0.1% after opening near flat. The MSCI Asia is off 0.3% with Japan on holiday.

• Japan Nikkei closed for holiday
• Korea Kospi off 0.39% to 2,301.99
• Hong Kong Hang Seng up 0.05% to 28,539.66
• China Shanghai Composite off 0.61% to 2,813.92
• Australia ASX off 0.40% to 6,326.70
• India NSE50 off 0.74% to 10,936.85
• UK FTSE so far off 0.70% to 7,607
• German DAX so far up 0.1% to 12,556 * helped by early DB release
• French CAC40 so far off 0.20% to 5,418
• Italian FTSE so far up 0.1% to 21,920

Fixed Income: Slow start with focus on supply and periphery – core EU bonds lower with UK Gilt 10-year yields up 0.5bps to 1.275%, German Bunds up 1bps to 0.345%, French OATs up 1.5bps to 0.63% while periphery mixed with Italy up 1.5bps to 2.56%, Spain up 0.5bps to 1.26% and Portugal up 0.5bps to 1.725%. Greece up 1bps to 3.815%.

• The Dutch NTSA sold E1.58bn of 3M DTC Sep 2018 at -0.6% with 1.61 cover – previously -0.62% with 1.4 cover.
• US Bonds are lower waiting for retail sales, more Trump and trade – 2Y up 0.5bps to 2.582%, 5Y up 0.7bps to 2.732%, 10Y up 0.5bps to 2.833%, 30Y up 0.5bps to 2.936%.
• Japan JGBs – closed for Marine holiday.
• Australian bonds holding pattern despite weaker China data, focus on 20Y syndication and RBA minutes – 3Y flat at 2.06%, 10Y up 1bps to 2.64%.
• China PBOC adds CNY300bn on the day – most in 5-months – after central bank injects CNY170bn in 7-day and CNY130bn via 14-day reverse repos. The central bank said they are offsetting corporate tax season, government bond issuance and reserve payments. Money market rates rose with 7-day up 2bps to 2.67% and O/N up 10bps to 2.54%. 10Y bond yields were flat at 3.49%.

Foreign Exchange: The US dollar index fell 0.2% to 94.48 - watching 100-week m.a. at 95.53 for any upside breakout against 94.48 support then 94.  The Asian EM FX was USD bid despite CNY gains – KRW off 0.45% to 1129 – touched Oct 2017 lows today over 1030, TWD off 0.1% to 30.58 – back to July 2017 lows. INR off 0.1% to 68.615 – WPI higher, hit stocks and bonds.  In EMEA, USD mostly offered – RUB up 0.5% to 62.223 ahead of Trump meetings. ZAR up 0.5% to 13.195, TRY off 0.2% to 4.8480.

• EUR: 1.1720 up 0.3%. Range 1.1676-1.1723 watching 1.1740-50 and 1.18 again.
• JPY: 112.35 flat. Range 112.12-112.56 with EUR/JPY 131.65 up 0.25% - on holiday so about equities and 112.87 breakout.
• GBP: 1.3290 up 0.4%. Range 1.3192-1.3293 with EUR/GBP .8820 off 0.1%. Brexit and politics still. Data this week key for BOE August risks.
• AUD: .7435 up 0.2%. Range .7402-.7442 with NZD .6790 up 0.5% - led by A$/NZ$ cross – watching weaker China data, metals
• CAD: 1.3145 off 0.1%. Rage 1.3137-1.3165 with oil lower not a problem with crosses supporting 1.3050-1.3300 stuck.
• CHF: .9975 off 0.35%. Range .9973-1.0005 with EUR/CHF 1.1695 off 0.1%. Less clear – with 1.00 pivot and mood mixed.
• CNY: 6.6758 fixed 0.05% weaker from 6.6727, trades stronger up 0.25% to 6.6832 after the official 6.6905 close Friday. The weekly CFETS RMB index fell 0.31% to 94.78 – lowest since January. The CNH also gained 0.25% to 6.6940.

Commodities: Oil down, gold flat, Copper off 1.1% to $2.7930.

• Oil: $69.84 off 1.65%. Range $69.72-$70.87. WTI watching $71.13 July 9 lows and $70.60 July 13 highs as resistance against $68.76 Friday lows and 55-day at $68.46.  Trump talks about using Strategic Petro Reserve, Iran/Russia focus. Brent off 2.1% to $73.76 with focus on $72.50 next.
• Gold: $1244.60 flat. Range $1243-$1246. Watching $1242.50 as pivot for $1204.50 or back to test of $1260.2 resistance. Silver up 0.1% to $15.827. Platinum flat at $829 and Palladium off 0.15% to $937.50.

Economic Calendar:

• 0830 am US July NY Fed Empire State Manufacturing 25p 22e
• 0830 am US June retail sales (m/m) 0.8%p 0.5%e /ex autos 0.9%p 0.4%e / control 0.5%p 0.4%e
• 1000 am US May business inventories 0.3%p 0.4%e