China Deflation Fears Increase
The week starts with no major economic releases apart from the Chinese inflation report due on Wednesday. Investors and traders are already focused on the US CPI inflation and UK GDP data releases scheduled for the end of the week.
Earlier in the morning, trade data coming from China indicated that concerns over its economic recovery are not baseless. In Japan, a government report showed the trade balance swung to a surplus of 328 billion yen, resulting in an overall surplus for a fifth straight month.
China CPI Inflation falls in July?
On Wednesday, investors will have the opportunity to scrutinise the Chinese CPI inflation report for the month of July. Economists suggest that CPI inflation fell by 0.5% on a yearly basis while they forecast that it remained steady at 0% on a month-to-month basis. The Chinese economy seems to struggle after its reopening at the beginning of 2023 with the government vowing to boost it with various economic policies.
ING analysts wrote in a report published on August 3rd: “We expect China’s July CPI to be almost unchanged as recently adopted measures by the government have yet to take full effect. While the Politburo reiterated support for the economy, we await further details on the said measures. Meanwhile, we expect PPI inflation to remain in negative territory. Despite the recent increase in oil prices, the mining and manufacturing prices are likely to drop further as evidenced by data releases this week (Caixin and property prices).”
China’s Exports and Imports Plunge In July
China’s customs office announced that the value of exports fell by 14.5% in July on an annualised basis, while the value of imports dropped by 12.4%. Both figures missed analysts’ expectations, who had suggested that exports’ value would drop by 12.5% and imports’ value by 5%.
A CNBC report said that Chinese exports’ value to the US fell by 23.1% year-on-year while the exports’ value to the eurozone dropped by 20.6%. Economists at the Economist Intelligence Unit told Reuters reporters that “economists may be misunderstanding the price factors underlying commodities, which dominate Chinese imports. For example, China is importing more oil but at lower prices, as a result the volume of crude oil accelerated in July, but the import value slowed. Similar logic holds for grains and soybeans.”
Oil Prices Hit a 4-Month High
Oil prices surged as the week began to their highest level recorded in the last four months, following an attack on a key Russian oil export hub and extended production cuts by Saudi Arabia and Russia. Saudi Arabia announced that it would extend its oil production cut to the end of September with news sources in the country suggesting that the cut could be extended or increased and extended.
Citi’s commodity analysts told CNBC reporters that Russian and Saudi Arabia are likely to increase output in October while “oil prices will hit $90 per barrel at most this quarter.” Citi’s experts suggested that “we just don’t see demand growth being that spectacular,” adding that there will not be “this huge incremental spurt in Chinese demand.”
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