Weekly Digest: China Tips Into Deflation, Gas Price Worries


10 minutes read

Aug 11, 2023

The flag of China

12/08/2023: China falls into deflation as consumer prices drop for the first time since 2021, gas price futures rise by nearly 40% on Australia supply fears, Ukraine announces a “humanitarian corridor” for ships stuck in Black Sea ports. And more.

💡Quote of the week

“2023 was the year that China was supposed to roar back following the end of its zero-COVID policy, but recent data this week indicate otherwise. There’s slowing growth, soaring youth unemployment, and signs that deflation might be a bigger problem than markets quite imagined… Tell me they need policy stimulus without telling me so.” - Nicky Shiels, MKS PAMP Head of Metals Strategy

Investment news

The chinese flag and yuan banknote

🇨🇳 China grapples with deflation. China confronts an unexpected deflation scenario, as both consumer and producer prices experience a downward trend. The consumer price index saw a 0.3% decline in July compared to the previous year, marking the first drop since February 2021. (Bloomberg)

Meanwhile, producer prices faced their 10th consecutive monthly contraction, with a 4.4% decrease in July. This rare occurrence of dual contractions prompts concern among China's policymakers. Some analysts remain hopeful, however, attributing the consumer price decline to a momentary year-on-year comparison.

🇺🇸 Tiny inflation steps. The U.S. Core Consumer Price Index (CPI) gently increased in July by 0.2% for the second month in a row, marking the smallest back-to-back gains in more than two years.This cautious rise has economists hopeful that the Fed can curb inflation without sparking a recession. (Bloomberg)

In the midst of this economic scenario, the U.S. economy shows robust growth and a flourishing job market, even in the face of elevated interest rates. However, concerns emerge due to inflation remaining above the Fed's target level.

“July’s CPI print is the second straight to show core inflation rises at a pace consistent with the Fed’s 2% mandate... We expect the Fed to keep rates on hold for the rest of the year,” Bloomberg economists Anna Wong and Stuart Paul write.

1 ounce Lady Fortuna gold bars, 1 kg PAMP Suisse gold bar in gold nuggets

The glitter of gold. Gold prices surged Thursday as the dollar backtracked following the release of U.S. inflation data. The numbers signaled a moderate increase in consumer prices for July, fanning hopes that the Federal Reserve might be putting the brakes on rate hikes.

Spot gold went up 0.3% to $1,920.69 an ounce, while U.S. gold futures edged up 0.1% to $1,953.40.

“With CPI continuing to slowly tick lower, that portends less likelihood of the Fed’s need to continue to raise interest rates, particularly at the September meeting. As a result, we’ve seen the dollar retrace and yields pull back and that’s a better underlying environment for the gold market,” David Meger, director of metals trading at High Ridge Futures, said as quoted by Reuters.

📈 Market gains. The stock market saw some strong activity on Wednesday as the Dow Jones Industrial Average led with a 295-point surge. Positive sentiment spread among traders as inflation data indicated slower growth than expected. (CNBC)

This rally was fueled by a key inflation report that painted a more moderate picture, boosting optimism across the market. The S&P 500 also embraced the positive trend with a 0.8% climb, while the Nasdaq Composite rose by a 0.9%.

⏸️Hit the pause. Fed policymakers are poised to hit the pause button on interest rates at their upcoming September meeting after fresh evidence of cooling inflation, but they'll be careful to emphasize their job isn't done yet. (Bloomberg)

“The Fed’s got to be encouraged by two lower numbers in a row. I think their intention is to skip in September. This certainly isn’t the last word,” Stephen Stanley, chief US economist at Santander US Capital Markets, said.

🤔 U.K. cost of living crisis relief? A glimmer of hope is on the horizon for struggling households in the U.K., as upcoming data is poised to unveil a rare occurrence: wages are set to outgrow prices for the first time in nearly two years. This potential shift comes as inflation eases and earnings gain momentum, offering a much-needed respite from the prolonged squeeze on living standards. (Bloomberg)

Average earnings excluding bonuses have shown a 7.3% rise in the year leading up to June, almost keeping pace with the 7.9% consumer-price inflation rate predicted by Bloomberg Economics. The eagerly awaited official labor market data, slated for release on August 15, will likely shine a light on this encouraging development.

🤯 Gas price panick. European gas markets are in upheaval as futures skyrocketed by nearly 40% on Wednesday, sparking fears of prolonged energy turmoil. The surge was triggered by worries about potential disruptions in Australian LNG facilities, casting a shadow over an already uncertain market. (CNBC)

Analysts forecast that this fiery momentum will continue, driven by a mix of global influences.

“Australia is now the highest exporter of LNG, beating Qatar and the US, but with production issues and compromised gas fields, European buyers are fearful of security in supply and have resorted to tank filling from the cash market before the onset of winter,” John Evans, an analyst at brokerage PVM, said.

📸 Image of the week

A meme mocking US banks


Members of a military council that staged a coup in Niger
Members of a military council that staged a coup in Niger attend a rally at a stadium in Niamey, Niger, August 6, 2023. REUTERS/Mahamadou Hamidou/File Photo

🤔 A new world war brewing? The recent coup in Niger has exposed a complex web of global power struggles, with Russia's influence on the rise. As the West grapples with the fallout, experts warn that this conflict could be a precursor to an undeclared world war, drawing ominous parallels to past proxy conflicts. (Bloomberg Opinion)

“By supporting the coup in Niger, Russia proves again that it sees its struggle against the West as a global war, just not a declared one yet,” Bloomberg’s Andreas Kluth writes.

What else is happening

Lifting cargo cranes, ships and grain dryer in Sea Port of Odessa, Black Sea, Ukraine

🇺🇦 Ukraine war. Ukraine has unveiled a “humanitarian corridor” in the Black Sea to free cargo ships trapped in its ports, testing Russia's blockade and escalating tensions. (Reuters)

Over 60 ships remain trapped in Ukrainian ports due to Russia's withdrawal from the grain deal around three weeks ago. Both Ukraine and Russia issue threats against ships approaching their ports, escalating the standoff.

🇪🇨 Ecuador in shock. The unexpected assassination of Fernando Villavicencio, a prominent Ecuadorean presidential candidate, has sent shockwaves through the nation. Known for his vocal stance against corruption and organized crime, Villavicencio was tragically killed during a campaign event in Quito on Wednesday. (Reuters)

President Guillermo Lasso condemned the act as an attempt to sabotage the upcoming election, though he affirmed that the electoral process would proceed as planned. In response, the nation's military has been mobilized to ensure security during the voting, scheduled for August 20.

👮Crackdown on climate activists sweeps Europe. European countries, including France and Germany, are grappling with an intensifying wave of "direct action" climate protests that have gained momentum, sparking a vigorous response from authorities. Activists demanding swift government action to address climate change have disrupted roadways and clashed with police in their pursuit of environmental goals. (Reuters)

Reuters' findings reveal an intricate landscape where police in Berlin have expended substantial resources on climate-related incidents, while Bavaria has adopted preventative detention laws that allow for individuals to be held for extended periods without charges. Despite the challenges posed by these crackdowns, activists remain resilient, underlining that the climate crisis remains an urgent concern that cannot be silenced.

And finally…

Blue Ice covered mountains in south polar ocean.

🧊 Antarctic sea ice hits a record low. The relentless surge in global temperatures has driven Antarctic sea ice to alarming record lows, setting off alarm bells among scientists. A study published in the journal Frontiers in Environmental Science reveals that the continent's summer ice cover has dwindled to a new low, marking a disheartening milestone in the realm of climate change. (Reuters)

Professor Anna Hogg from the University of Leeds, one of the study's authors, summarizes the grim situation: "It's going to take decades if not centuries for these things to recover. There's no quick fix to replacing this ice."


See you next week!


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