Will US Inflation Convince Investors that More Fed Hikes are Needed?

Even after the US employment report revealed higher-than-expected wage growth for July, investors continued to believe that the Fed has already concluded its own tightening crusade. Will this week’s CPI numbers make them change their mind? Where are the risks tilted to and how could the markets respond?

FTSE 100 – Investors Troubled by Chinese Trade Data as Oil Prices Pull Back

Pullback coincides with quiet summer trading Key support in UK100 may be seen around rising trendline from pandemic lows

Brent Crude – China Data Weighs on Oil Prices

The data from China appears to be weighing on oil prices today, which is understandable with it being the world’s second-largest economy.

China Falls into Deflation

China: The Chinese economy fell into deflation in July, where CPI dropped 0.3% y/y. Consensus expected this outcome, but it is still a striking development. It is rare that consumer prices decline in China. It happened global crises in 2020 and 2009. It also comes at a time when many other large countries are still battling high inflation. Finally, the price decline in China happened despite the 6% drop in the effective exchange rate the past year.

Crypto Encouraged Again by Banks' Woes

Bitcoin added over 3% throughout Tuesday with a mini short-squeeze in low-liquidity morning trading briefly taking the price above $30K before pulling back to $29.7K by the time of writing. Bitcoin could maintain a negative correlation with bank stocks’ performance, benefiting from their downturn. However, without actual industry bankruptcies, this is akin to a knee-jerk reflex with a short-lived impact.

What China's Weak Inflation Tells Us

China’s CPI was 0.3% lower year-on-year in July, which the media has rushed to call deflation, while by definition, it is a sustained price fall. It is more accurate to discuss disinflationary pressures caused by one-off factors, including last year’s high base. For example, a 26% fall in pork prices has contributed to the current decline.

Australian Dollar Edges Higher after Mixed Confidence Data

The Australian dollar has bounced back on Wednesday and is trading at 0.6552, up 0.13%. AUD/USD slipped 0.45% on Tuesday and dropped to its lowest level since June 1st.

China Deflation and Commodity Currency Outlook

Yesterday, China reported an annual CPI of -0.3%, which was actually higher than the -0.4% expected. An important portion of that could be down to base effects, because the monthly rate grew once again at 0.2%. But the fact that the world's second largest economy is seeing deflation right after reporting a significant slowdown in trade can be a problem for the global economy.

New Zealand Dollar Shrugs as Inflation Expectations Rise

Like most major central banks, the Reserve Bank of New Zealand has been waging a long and tough battle against inflation by raising interest rates. CPI fell to 6.0% in the second quarter, down from 6.7%. That’s certainly good news, but let’s remember that inflation is still rising sharply and is much higher than the RBNZ’s 2% target.

British Pound Flat on Light Data Calendar

The UK economy is not in good shape and the possibility of a recession is very real. GDP is expected to flatline in Q2 (0.0%) after a weak gain of 0.1% in the first quarter. A weaker-than-expected GDP reading could spook investors and send the British pound lower.