Chinese consumer price figures showed a decline in June to be essentially unchanged from a year earlier, while producer prices dived deeper into negative territory
Asian share markets turned mixed on Monday as an unexpectedly low Chinese inflation data underscored the issues in its economy, ahead of U.S. inflation and corporate earnings data later in the week.
Chinese consumer price figures showed a decline in June to be essentially unchanged from a year earlier, while producer prices dived deeper into negative territory.
The miss implies there is a lot of possibility to ease monetary policy further, but also highlights the challenge China faces in reflating its economy and avoiding a deflationary spiral.
The yuan shed early gains on the news, though Chinese blue chips were still 0.5 per cent higher on expectations for a loosening in regulations for the tech sector. Alibaba Group shares also joined the rally.
The gains in China helped MSCI’s broadest index of Asia-Pacific shares outside Japan strengthen 0.3 per cent. Japan’s Nikkei slid 0.1 per cent amid a higher yen, while South Korea gained 0.2 per cent.
EUROSTOXX 50 futures dived 0.1 per cent while FTSE futures held steady. S&P 500 futures and Nasdaq futures both dived 0.2 per cent, adding to last week’s losses.
Earnings season starts later this week with JPMorgan Chase, Citigroup, Wells Fargo, State Street and PepsiCo among the names reporting.
Consensus anticipates a 9 per cent YoY decline in S&P 500 EPS led by flat sales growth and margin compression, according to Goldman Sachs analysts.
We expect firms will be able to meet the low bar set by consensus, the analysts said. Negative EPS revisions for 2023 and 2024 seem to have bottomed and revision sentiment has improved.
This week also has major data on U.S. consumer prices which is predicted to show headline inflation slowed to its lowest level since early 2021 at 3.1 per cent, down from 9.1 per cent a year ago.
Markets still think the US Fed is likely to hike rates later this month, but a weak Consumer price index might reduce the risk of yet another move in September.
Currently futures imply nearly a 90 per cent probability of an increase to 5.25 per cent-5.5 per cent this month, and a 24 per cent possibility of a move in September.
Fed officials have been mostly hawkish, while markets have also priced in higher rates in Europe and the UK. Canada’s central bank meets this week and markets imply a 67 per cent possibility of another hike.
The risk of higher global rates for longer has caused tumult in bond markets, where U.S. 10-year yields climbed 23 bps last week, German yields 24 bps and UK yields 26 bps.
On Monday, U.S. two-year yields sat at 4.95 per cent, having hit a 16-year high of 5.12 per cent last week.
The jump in developed-world yields resulted in ripples in currency markets, specifically in carry trades where investors borrow yen at super-low rates to invest in high-yielding emerging market currencies.
The net result was a rush to close yen short positions which saw the yen rally across the board last week, though it was struggling to maintain the rally on Monday.
