China’s Consumer Price Index (CPI) fell by 0.3% year-on-year in July, signaling deflation in the country. This development raises concerns about the global economic growth outlook, although it may help mitigate inflationary pressures on a global scale. Asian shares were impacted by this data, with the MSCI’s broadest index of Asia-Pacific shares outside Japan edging up by 0.2%. However, Japan’s Nikkei slipped by 0.4%.
In Europe, futures were up across the board, with EUROSTOXX 50 futures rising by 0.9% and FTSE futures by 0.5%. This positive trend followed reassurances from Italy that its new tax on banks would not exceed 0.1% of total assets, easing investors’ concerns.
US bank shares, on the other hand, fell after Moody’s downgraded several lenders, fueling worries about the health of US banks and the economy. The Dow fell by 0.5%, the S&P 500 lost 0.4%, and the Nasdaq Composite dropped by 0.8%.
Chinese property developers listed in Hong Kong also faced challenges, with a 0.6% drop in their shares. This decline comes after a previous 4.8% plunge, highlighting concerns about the sector, which is a significant driver of economic growth.
Despite China’s deflationary pressures, experts believe that the impact may not be as substantial as anticipated. Gary Ng, Asia Pacific senior economist at Natixis, stated that while deflationary signals are present, core CPI remains resilient due to the services sector. However, if consumer sentiment does not improve, China could potentially face growing deflation risks.
Additionally, Brazil is also experiencing disinflationary forces, with consumer prices falling more than expected in mid-July. To address this, the country’s central bank recently cut interest rates by 50 basis points.
Furthermore, longer-term Treasury yields slipped further in Asia, following strong interest in the sale of three-year notes. Ten-year yields eased by 3 basis points to 3.9981% after reaching a one-week trough.
In currency markets, the US dollar retraced some of its overnight gains against a basket of currencies, while the Australian dollar rebounded after breaching a key support level.
Oil prices saw a slight decline, with Brent crude futures easing by 0.2% to $86.00 per barrel and US West Texas Intermediate crude futures falling by 0.2% to $82.73.
Meanwhile, the price of gold increased by 0.3% to $1,930.18 per ounce.
Overall, global markets are reacting to the latest economic data from China, Moody’s downgrades, and developments in Europe. Investors are closely monitoring inflationary and deflationary forces, as well as the health of the global economy.