Gross domestic product (GDP) growth in China, the world’s second largest economy, dropped again on a year-over-year basis, from 8.1% last quarter to 7.6% for the second quarter. Growth is at its lowest level in three years. In domestic news, the major U.S. equity markets rallied last Friday and erased earlier losses to finish positive for the week.

First, let’s recap news from the past week:

• The U.S. nominal trade gap narrowed to $48.7 billion in May from $50.6 billion in April.  While exports nudged upward by only 0.2% for the month, imports fell 0.7% due to a drop in crude oil prices.
• The headline producer price index, or PPI, edged higher by 0.1% in June, following a sharp 1.0% plunge the prior month.  A rebound in food prices contributed to the unexpected rise in producer prices.  The year-over-year PPI remained at a positive 0.7%. 
• In other U.S. news, weekly unemployment claims plummeted 26,000 to 350,000, bringing the 4-week moving average down to 376,500. 
• On a disappointing note, the University of Michigan Consumer Sentiment Index declined to 72.0 in the first half of July, from a June month-end reading of 73.2.  The weakness in the sentiment report was in the expectations component, which was down 3.0 points to 64.8, the weakest reading thus far in 2012.
• Looking overseas, China’s gross domestic product, or GDP, slowed to 7.6% on a year-over-year basis in the second quarter of 2012, down from 8.1% in the first quarter.  China’s GDP growth has slowed for six straight quarters and is now at its lowest level since the first quarter of 2009.
• Due to a strong rally on Friday, the major U.S. equity markets finished slightly in the black for the week, with the Standard & Poor’s 500 up 0.16% and the Dow Jones Industrial Average higher by 0.04%.  One of the biggest movers for the week was oil, up $2.65 per barrel on a drop in inventory.

Sources of chart data: Yahoo Finance, Freddie Mac, MarketWatch, Thomson Reuters, and The Wall Street Journal

Now let’s look at the economic events for the next two weeks:

• Earlier this morning, the latest report on U.S. retail sales was released.  Sales in June were much softer than expected, falling 0.5%, versus a forecasted rise of 0.2%.  Automobile, restaurant, clothing, furniture, and electronic sales all fell for the month.
• Tuesday morning brings more data on inflation, with the announcement of the Consumer Price Index, or CPI.  Similar to the Producer Price Index, the Consumer Price Index is estimated to rise 0.1% for the month of June.  On a year-over-year basis, CPI should stay close to last month’s rate of 1.7%.
• The middle of the week brings important data on U.S. housing, with June data expected to show improvement compared to May.  Housing starts, published on Wednesday morning, are forecast to increase from 708,000 to 745,000, a gain of 5.2%.  Existing home sales, due out on Thursday morning, are estimated to rise from 4.55 million to 4.65 million, an improvement of 2.2%.
• Another item to watch this week is the June index of leading economic indicators, or LEI, which is also announced on Thursday morning.  While LEI advanced a healthy 0.3% in May, the consensus for June is a small decline of 0.1%.

Finally, a few comments on earnings:

• Through July 13, only 29 companies in the S&P 500 have reported 2Q earnings.  Things pick up this week as 88 companies are expected to release quarterly results.  Some notable names include: Citigroup, Coca-Cola, Goldman Sachs, Intel, Bank of America, American Express, IBM, eBay, Google, Morgan Stanley, Southwest Airlines, Union Pacific, and General Electric.

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