Overnight, China has published as usual data miraculously soon after the end of the period to which they relate. The way had been prepared for a drop in Q2 GDP to a 27-year low of 6.2% (annualised) but it is hard to believe the authorities will allow full year growth to fall below 6% in 2019. Higher than expected Industrial Production (+6.3% year on year) and Retail Sales (+9.8%) in June are not consistent with the continuing soft Import (-7.3%) and Export (-1.3%) data.

The authorities do not appear to be in panic mode (still cracking down on shadow banking) but they are clearly looking for targeted fiscal and monetary measures to response to the gloom of many companies (a recent Credit Suisse survey shows that now even the large companies are concerned).

Ironically, some of the best news so far in July has come from the UK with official data on GDP and the component Production, Manufacturing and Services Indices turning out somewhat better than the PMI and other survey data anticipated. Moreover, prices in the sacred Housing Market appear to be bottoming out according to the authoritative RICS and LSL surveys. All this is from historically very low levels. The French Economy seems to be having a better run, especially the Industrial Sector, but the opposite is still the case for Germany.

Solid US CPI and Employment data makes it more difficult for the Fed to justify a rate cut on economic grounds but each of the of Atlanta, St Louis and New York Fed’s Nowcasts are estimating Q2 GDP at well below the trend of just over 2% annualised (Figure 1), as do most private sector economists. As President Trump congratulates himself on the state of the economy and castigates the Fed for not doing exactly (cutting rates, more QE) what Candidate Trump denounced three years ago, one has to wonder if he is worried about a cyclical downturn just as he is seeking re-election. He is famously contemptuous of economists but it is worth noting that his first policies were distinctly Keynesian in seeking to stimulate demand through fiscal policies. The main beneficiaries may have been companies and the better off but there has been an impact on the Labour Market and, as shown in Figure 1, GDP growth.

In recent months, however, Mr Trump has discovered his inner Colbert, another famous but discredited economist whose aggressive mercantilism fitted well at first with Louis XIV’s aggressive foreign policy. By picking trade fights with some countries on trade (China, Mexico, Canada, Germany) and ‘ordinary’ fights with others (Iran, Turkey, Venezuela) while running up huge fiscal deficits he may actually end up causing damage similar to that which beset C18th France (after Colbert’s death).

Japan and Korea may see US policy as justification for their quarrel. The acceleration of the EU-Mercosur negotiations and the formation of the Africa Free Trade Area are more positive responses to the rise of mercantilism but will bypass the US.