Summer markets

On the face of it, last week contained many of the news headlines that market optimists had been waiting for: rapidly falling US inflation and a cooling jobs market. In the UK, news that four of its major high street lenders were lowering mortgage rates was then followed by confirmation that GDP growth was positive rather than stagnant in the second quarter.

Yet the erratic yo-yo trading pattern of volatile markets over last week would suggest to the outsider that bad news had dominated. So, how are market actors pricing the news flow at the moment, and what, if anything, has changed?

We need to talk about China

hina’s economy has sputtered again. Data released last week showed consumer prices fell 0.3% year-onyear in July. Producer prices were even lower, falling 4.4%. That might sound like a strange thing to complain about, given the west’s ongoing battle with high inflation; but China did not experience the same wave of post pandemic inflation, and now deflation is a bad sign for the world’s second-largest economy. It shows weakness in consumer demand, which will likely mean slower growth down the line.

The wider context is that China has been the biggest economic disappointment of the year so far, at least when compared to initially heightened expectations. After Covid regulations were loosened and policy stimulus seemingly forthcoming at the end of 2022, most thought a sharp bounce in activity was a foregone conclusion. However, business activity failed to generate significant momentum, as reflected by poor earnings of listed companies and with the property sector proving to be an enormous and continuous drag.

Click here to read the full commentary