· The 8.6% mom contraction in China's June imports which shocked at the start of the week was the key to unlock most of what happened next. The crucial thing was the sharp fall in China's commodity imports – crude oil, refined products, copper, iron ore – and the impact this has on commodity prices.
· All regions reported on producers’ prices, wholesale prices and trade prices. Except for US PPI, these indexes fell more sharply than expected. These are generally positive surprises, because prices of raw materials and intermediate goods fell more sharply than final goods, and import prices fell more than export prices. Relative price movements thus improved both industrial margins, and terms of trade for all but commodity-producers. The result is that trade balances are generally improving even though trade volumes remain uninspiring.
· Just as expectations about monthly data have deteriorated enough to make it far easier to surprise than to shock, economists have finally downgraded forecast growth and inflation for the US and Europe. A month ago, the US expected 2H growth of 2.4% - now this is down to 2.2%. A month ago, Europe’s recession was expected to be done by year-end – now that has been pushed out to 2Q13. Bucking the trend, Japanese forecasters, have raised their forecast for the next six months to around 2% from the previous 1.5% in capitulation to a run of surprisingly positive monthly data.
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