The releases of the latest indicators from China did little to quell concerns about the lethargic state of economic activity. CPI and PPI gauges both missed the target and with deflationary troubles brewing for the world’s second largest economy, one wonders how long it will be before the central bank steps in to provide something more meaningful on the stimulus side.
CPI for June came in at 0% while PPI was -5.4%. Previous attempts by the PBOC in this cycle to kickstart activity have been very mild and this latest batch of data has done nothing to dissuade the view that a harder-hitting approach is needed on the stimulus front to arrest the economic slide.
The AUDUSD rate eased following the disappointing Chinese economic data. The Aussie Dollar had been eying off a move beyond the US$0.67 level after the USD Index slipped following the NFP-miss last Friday. However today in quiet trading conditions the AUD eased back towards US$0.6660 against the greenback.
The USD Index has moved off the lows to start the week with the Chinese CPI and PPI data spurring some safe haven buying in currency circles. The USD took a knock following the NFP data (209k vs 224k expected) which included downward revisions to the jobs figures in previous months. But while the headline figures failed to live up to the hype given the bumper ADP number, wage pressures remain elevated which shows that the FOMC still has their work cut for them when it comes to tackling inflation.
Last Friday, oil took advantage of the softer USD to mount a breakout higher. However, during Asian trading hours today, we did see a slight pullback in oil in reaction to the Chinese CPI and PPI data. While the OPEC+ production cuts look to be gaining some traction, the Chinese economic indicators released today are a reminder that all is not well on the demand side, which could make the task of consolidating recent gains more difficult for the oil price.
Gold in familiar territory
Elsewhere, gold is again trading in familiar territory, that is, above US$1900 but below the 100-day MA of US$1925. Expectations of a July hike by the FOMC is keeping the short-term upside for gold capped, with US yields remaining elevated.
Attention will be squarely on US CPI and PPI data this week, because while a July rate hike is all but baked into the cake, what happens to US interest rates between August and the end of the year is still an open question. As such, inflation gauges are the fulcrum around which market sentiment swings.
Market commentary and analysis from Tim Waterer, chief market analyst at KCM Trade
