Macro & Markets Review - 9th August, 2023
Key economic developments
·???????China’s consumer prices fell for the first time in nearly 2 years, with annualised inflation falling by 0.3%, fuelling concerns of growing risk of deflation for the economy
·???????China experienced a more rapid decline in both imports and exports in Jul-23 than anticipated, posing a challenge to the pace of recovery. Customs data revealed a 12.4%YoY contraction in imports, surpassing Jun-23’s 6.8% decline. Similarly, exports saw a steeper contraction of 14.5% surpassing the previous month's 12.4% fall.
·???????In Jun-23, the U.S. trade deficit shrank significantly by 4.1% to USD 65.5 bn, driven by reduced imports, notably a 1.0% drop overall and a 1.2% decline in goods imports.
·???????NIESR (National Institute of Economic and Social Research) forecasts suggest the BoE would likely not achieve its 2% inflation target before 2028. Presently, inflation stands at 7.9% with NIESR projecting a decrease to 5.2% by the end of 2023 followed by an extremely gradual decline thereafter.
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Equity Market
On Tuesday, major global indices closed lower. US S&P 500 and DAX 30 declined by 0.4% and 1.1% respectively after ratings agency Moody's downgraded several U.S. lenders. Asian markets too ended in red hesitant on China inflation data following disappointing trade data.
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Currencies
On Tuesday, most global currencies declined against the U.S. dollar, with safe-haven DXY rising by 0.5% due to Moody's credit rating reduction for several small to mid-sized U.S. banks. While INR, CNY, and JPY depreciated on weak Chinese data, EUR was down 0.4% ahead of the much-awaited final inflation figures for Jul-23.
Bond Yields
Global bond yields ended mostly lower on Tuesday as market participants assessed the latest weak economic data out of China and looked ahead to a key CPI inflation reading from the US on Thursday.
Commodities
Crude oil prices rose by nearly 1% on Tuesday to USD 86.17 pb, as US Government agency EIA (Energy Information Administration) projected a rosier outlook on the economy, but bearish trade from China weighed. Gold prices showed decreased marginally by 0.6% on Tuesday weighed down by a stronger Dollar.