Numbers to watch this week: India MF data; euro zone policy rate, GDP

1. Mutual Fund Flows

Not withstanding the market volatility, net inflows into equity MF schemes surged to a record ₹20,743 crore in July, roughly five times the inflows in June. This was primarily because of new fund offers. Besides, retail investors seemed unperturbed by worries over a possible third covid-19 wave and reinstated their faith in equity MFs with a record contribution of ₹9,609 crore in systematic investment plans (SIPs).

Which way did investments go in August? The data will be released by the Association of Mutual Funds in India (Amfi) on Friday and will give a status check on the faith of investors in capital markets. August was marked by Indian equities resuming their upward journey to scale new heights after staying range-bound over the last four months. With unlocking underway and economic activity picking up, sentiments remain buoyant. However, fears of a tightening in the US monetary policy could keep emerging market investors on their toes.

2. US Inflation

The US will release its producer price index (PPI) for August on Friday. The PPI inflation in the US has been on radar of economists this year because of the acute supply chain constraints that are choking manufacturers globally. This, after months of soaring demand has kept wholesale price pressures alive in the US. 

Producer prices rose 7.8% year-on-year (y-o-y) in July, the quickest in more than a decade, as businesses across sectors struggled to get raw material supplies. The pressure is spilling over to retail, straining households’ buying power at a time when real wage growth is muted. Consumer spending growth virtually stalled in July. 

Economists warn that inflation will persist for now, eating into growth. The slowdown in spending can also be attributed to a fresh covid-19 outbreak that is becoming a headwind to growth even as supplies fail to improve. Investors will use the August PPI data for the latest pulse check of global logistics chains.

3. China Trade

One metric that China’s rapid economic growth hinged on was exports. Pent-up demand from the West fuelled double-digit export growth. However, various factors have come together to put the brakes on that boom. In July, y-o-y export growth slid below 20% for the first time this year. A further slowdown is expected when the trade data for August comes on Tuesday. 

The worst hit has come from China’s prompt curbs after the recent surge in covid cases. A major trading port stayed shut for two weeks, clogging supplies when foreign demand was slowing. Tighter pollution policies are also hurting firms. 

By August-end, the impact was clear. Manufacturing activity nearly contracted as export orders slowed and economists were toning down gross domestic product (GDP) forecasts for this year.

3. China Trade

One metric that China’s rapid economic growth hinged on was exports. Pent-up demand from the West fuelled double-digit export growth. However, various factors have come together to put the brakes on that boom. In July, y-o-y export growth slid below 20% for the first time this year. A further slowdown is expected when the trade data for August comes on Tuesday. 

The worst hit has come from China’s prompt curbs after the recent surge in covid cases. A major trading port stayed shut for two weeks, clogging supplies when foreign demand was slowing. Tighter pollution policies are also hurting firms. 

By August-end, the impact was clear. Manufacturing activity nearly contracted as export orders slowed and economists were toning down gross domestic product (GDP) forecasts for this year.

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4. EU Interest Rate

The Eurozone’s retail inflation rose 3% y-o-y in August, the most in 10 years, from 2.2% in July. This increases pressure on the European Central Bank (ECB) to act before inflation rises further with rising demand amid tight supply chains. What that action may be will become clear when the ECB’s monetary policymakers meet on Thursday.

Besides the high inflation print, hints from the Federal Reserve of the US of a tightening policy action by the year-end have also put the spotlight on its European counterpart. Earlier this year, the ECB had avoided such measures even while raising inflation forecasts, in the hope of more stable evidence of recovery. Since then, the economy has only gathered steam despite another covid-19 wave, making a case for withdrawing stimulus such as asset purchases. However, the ECB as a group may take its time, which means markets will watch out for notes of disagreement within that panel.

5. Eurozone GDP

A fresh update to the euro area’s June quarter GDP is due on Tuesday. Previous estimates had put sequential growth during the period at 2%, the first expansion in three quarters. This was because of a reducing pandemic risk and a pick-up in vaccinations.

Most high-frequency indicators since then have continued to surge, defying the Delta variant that was discovered in July. The services sector, which was battered by the pandemic earlier, is leading this phase of recovery as industrial output buckles under supply bottlenecks.

Economic output is further set to grow in the ongoing quarter, showing that vaccinations matter in mitigating the impact of covid-19. More than 70% of EU adults are now fully vaccinated. Labour market stress is also easing. Thus, inflation is the biggest risk in the months ahead. Cross-country disparities will be a cause of concern for markets, though. Germany and France, the largest EU economies, grew much slower than the average euro area pace in the June quarter.