Will Chinese deflation hurt global markets?

Will Chinese deflation hurt global markets?

  • Corporate Earnings news
  • Global market indices
  • Currencies
  • Cryptocurrencies
  • Fixed Income
  • Commodity sector news
  • Key data to move markets this week
  • Global macroupdates

Corporate Earnings News

According to Refinitiv I/B/E/S data, on 8 August the 23Q2 Y/Y blended earnings growth estimate is -3.8%. If the energy sector is excluded, the growth rate for the index is 2.5%. The 23Q2 Y/Y blended revenue growth estimate is 0.4%. If the energy sector is excluded, the growth rate for the index is 4.3%. In short, the picture emerging is that of continued resilience and strength, with an above-average proportion of companies beating estimates. As noted by Yahoo news, for the 452 S&P 500 companies that have reported Q2 results, total earnings are down -9.6% from the same period last year on +0.4% higher revenues, with 78.8% beating EPS estimates and 65.0% beating revenue estimates. The tech sector, which has surged in 2023 despite uncertainty over the rate environment, has a more interesting picture. With 81.0% of the sector’s total market capitalization in the index having reported, total earnings for these companies are down -2.4% on -0.2% lower revenues, with 81.7% beating EPS estimates and 80.0% beating revenue estimates.

Corporate earning calendar 10 August - 17 August 2023

Thursday: Alibaba GroupNovo Nordisk, Wheaton Precious Metals, News Corp.
Friday: Newcrest Mining
Tuesday: Home Depot, Agilent TechnologiesCardinal Health
Wednesday: Cisco Systems, Keysight Technologies
Thursday: Walmart, Applied Materials, Ross Stores

US Stock Indices

Nasdaq 100 -4.15% MTD and +38.06% YTD
Dow Jones Industrial Average -0.69% MTD and +6.54% YTD
NYSE -1.77% MTD and +6.27% YTD
S&P 500 -1.95% MTD and +17.19% YTD

Mega caps: A bad week for the mega caps with Alphabet, Apple, Meta Platforms, Nvidia, Microsoft, Tesla all downAmazon surged after it reported a massive jump in profits in Q2 with sales growing 11% to $134.4 billion, an increase from $121.2 billion in the second quarter of 2022. 

Energy stocks had a generally good week as worries over tightening supplies outweighed lower Chinese demand. Apa Corp (US), ConocoPhillips, Chevron, Phillips 66, Occidental Petroleum, Shell Halliburton and Baker Hughes are all up. Uranium producer Energy Fuels saw its stock surge upwards after releasing its Q2 earnings report earlier this week which indicated that it had completed the sale of 80,000 pounds of uranium and was on course to sell another 180,000 pounds this year.

Materials and Mining stocks were mixed this week as news of Chinese deflation weighed on stocks. Base metals prices are expected to remain volatile as the market's focus will likely remain on signs of flagging global growth weighing on demand. Newmont Mining, Yara International, Nucor Corporation, Sibanye Stillwater, Freeport-McMoran, and DuPont de Nemours Inc. are all down while CF Industries Holdings and Mosaic are up. Albemarle Corporation continues to be down this week following its agreement with the US authorities to pay a $218.5 million fine to resolve an investigation into potential improper payments by third-party sales representatives. As noted by the Wall Street Journal, the agreement would resolve possible violations of the US Foreign Corrupt Practices Act, an anti-bribery law. Under the agreement, Albemarle would enter into a non prosecution agreement with U.S. prosecutors, and an administrative settlement with the SEC. The company won’t be required to retain an independent monitor, but instead would need to make periodic reports about its compliance with the FCPA, Albemarle said.

European Stock Indices

Stoxx 600 -2.28% MTD and +8.40% YTD
DAX -3.61% MTD and +13.85% YTD
CAC 40 -2.34% MTD and +13.10% YTD
IBEX 35 -2.98% MTD and +13.67% YTD
FTSE MIB -4.51% MTD and +19.41% YTD
FTSE 100 -1.46% MTD and +1.82% YTD

Other Global Stock Indices 

MSCI World Index -2.66% MTD and +13.69% YTD
Hang Seng -4.15% MTD and -2.71% YTD


The USD had a mixed week: rising early in the week on comments by US policymakers such as Fed board governor Michelle Bowman’s stating that additional interest hikes will likely be necessary to reach the 2% inflation target, before drifting lower on Wednesday in anticipation of US CPI data and on reported selling by Chinese banks. The GBP was still +5.15% YTD against the USD on Wednesday and, with the Fed looking at least slightly less likely to raise rates again in September, as core CPI data came in at 0.2% in a m/o/m basis, the dollar is likely to weaken further. The EUR was +2.54% YTD against the USD by Wednesday evening.


Bitcoin +0.97% MTD and +77.89% YTD
Ethereum -0.07% MTD and +54.52% YTD

Bitcoin was slightly up this week, but still remained below peak levels reached earlier this year. According to Barrons, digital currencies appear to be entering a period of low volatility with US disinflation and the possible ending of the US tightening cycle, seeming to have little impact.

Fixed Income

US 10-year yield to 4.00%.
German 10-year yield to 2.50%.
UK 10-year yield to 4.36%.

Treasury yields fell over the past week with longer-dated Treasuries seeing the biggest fall as the US Treasury Department saw strong demand for its $38 billion sale of 10-year notes. Today’s CPI data, showing a lower than expected headline number of 3.2% and a lower core of 4.7%, will likely be interpreted as reducing the chance of further rate rises by the Fed, meaning yields on the short end of the curve in particular are likely to start falling again.


Gold futures to $1,949 an ounce.
Silver futures to $22.71 per ounce.
West Texas Intermediate crude to $84.24 a barrel.
Brent crude to $87.55 a barrel.

Oil was up this week as production cuts by Saudi Arabia and Russia threaten to squeeze global supply. This is despite US crude stocks rising this week by 5.9 million barrels to 445.6 million barrels according to the Energy Information. US production rose 400,000 bpd to 12.6 million bpd, EIA data showed, the highest since March 2020.

Gold prices will continue to depend on the US inflation rate. With today’s CPI indicating continuing deflation, traders may now be anticipating that the Fed may be looking to hold, rather than raise rates at its next meeting in September. Gold has dropped about 7% since May on rising interest rates and uncertainty around future policy.

Note: As of 5 pm EDT 9 August 2023

Key data to move markets this week


Thursday: ECB Economic Bulletin.
Friday: Spanish Harmonised Index of Consumer Prices.
Tuesday: Eurozone ZEW Current Situation Survey, German ZEW Current Situation and Economic Sentiment.
Wednesday: Eurozone Employment Change, GDP and Industrial Production.


Friday: GDP, Industrial Production and Manufacturing Production.
Tuesday: Average earnings including and excluding bonus, Claimant Count Change, Claimant Count Rate, and ILO Unemployment Rate.
Wednesday: CPI, PPI Core Output, PPI, and RPI.


Thursday: CPI, Initial jobless claims, Monthly Budget Statement, and speeches by Atlanta Fed President Raphael Bostic and Philadelphia Fed President Patrick Harker.
Friday: PPI, University of Michigan Consumer Sentiment Index, and UoM 5-year Consumer Inflation Expectations.
Tuesday: New York Empire State Manufacturing Index and Retail Sales.
Wednesday: Building Permits, Housing Starts, Industrial Production and FOMC minutes.
Thursday: Initial jobless claims 


Tuesday: Industrial Production and Retail Sales.

Global Macro Updates

US inflation focus. With headline CPI coming in at 0.2% m/o/m and 3.2% y/o/y and core inflation coming in slightly below expectations at 4.7% y/o/y, and at 0.2% m/o/m, the bets are increasing that Fed’s next move at its next meeting on 19-20 September may be “hold steady.” However, rising energy costs due to tighter supply, may filter through over the next couple of months. In addition, the Fed may still be concerned by the possible impact that still-strong average hourly earnings may have on the economy. In short, the CPI news was good, but it may not be the game changer markets are hoping for as we are still a ways to go to reach that 2% Fed target. On Tuesday, the New York Federal Reserve Bank said US credit card debt surpassed $1 trillion which is likely to also negatively impact the consumer in the months ahead, which in turn could reduce the likelihood of the much hoped for soft landing.

How will Germany’s misery impact ECB actions? German growth is down with Industrial production falling by 1.5% in June compared with the previous month, the federal statistics office said on Monday. Manufacturing continues to fall with the HCOB Germany Manufacturing PMI coming in at 38.8 in July 2023, the lowest reading since May 2020, from 40.6 in June. This points to worsening business conditions across Germany. In addition, German GDP stagnated at zero growth in the second quarter of 2023, between April and June. Germany's economy, Europe's largest, contracted by 0.1% in the first quarter of 2023 and by 0.4% in the last quarter of 2022, according to revised figures from Destatis. At least some of the decline may be attributable to the impact of tightening ECB monetary policy on business investment. Germany’s slowdown is affecting the Eurozone overall, with last week’s HCOB's final Composite Purchasing Managers' Index (PMI), dropping to an eight-month low of 48.6 in July from June's 49.9. This is putting pressure on the ECB; does it continue to focus on bringing core inflation back down so that it is able to meet its 2% target or does it pause on further tightening in September? Other factors for consideration will also include the coming rise in energy prices following the surge of almost 40% in European natural gas prices on Wednesday as the potential for disrupted global liquefied natural gas supply from Australia caught traders off guard.

Prices on the Title Transfer Facility, the European benchmark, rose to more than €43 per megawatt hour, up from almost €30 on Tuesday, reaching its highest point since mid-June. As noted by the Financial Times, despite gas storage levels rising close to capacity in the EU, the energy crisis is not yet over, and markets are still nervous about the vulnerability of supplies.

China deflates. China’s consumer and producer prices fell together for the first time since 2020 with CPI falling by 0.3% in July from a year earlier and Producer prices falling by 4.4%, its 10th monthly consecutive drop. China’s much touted post Covid recovery has collapsed with slowing consumer demand, as imports were down and an ongoing property market slump is likely to worry Chinese officials. These concerns may only be exacerbated by rapidly falling exports, which fell by 14.5% year on year in dollar terms in July, the biggest decline since February 2020. This may push manufacturers to cut prices to get rid of excess stock. Deflation could slow China’s economy as falling prices lead consumers to delay purchases of durable goods and companies to delay or reduce investment by increasing debt costs relative to income. This reduced demand could also hit global commodity producers. China’s situation has become even more worrying with US President Joe Biden signing an executive order on Wednesday directing the US Treasury Department to regulate certain US investments in Chinese semiconductors and microelectronics, quantum computing and artificial intelligence. As noted by Bloomberg news, the order won’t go into effect until next year, won’t be retroactive and excludes sectors such as biotechnology. It may end up exempting passive investments as well as those in publicly traded securities, index funds and other assets. According to Refinitiv, the Chinese Commerce Ministry responded by saying that the order affects normal operation and decision-making of enterprises, and undermines the international economic and trade order.

The SEC battles on. The US Securities and Exchange Commission (SEC) will file an "interlocutory appeal" of a judge's ruling on Ripple's programmatic sales of XRP, the regulator said in a court filing on Wednesday. In July US District Judge Analisa Torres said that Ripple Lab’s Inc. sales of XRP to institutional investors met the test for an investment contract and therefore violated securities law, its programmatic sales to retail investors through exchanges did not. According to Bloomberg news, the SEC told Torres it plans to seek permission to promptly appeal her ruling to the 2nd US Circuit Court of Appeals, saying a timely review is warranted because of the “number of actions currently pending that may be affected” by the way the appellate court decides. A ruling from the court could resolve legal questions and provide a measure of consistency to lower-court decisions. As noted by Coindesk.com, the SEC filing said, "Specifically, the SEC seeks to certify the Court’s holding that Defendants’ 'Programmatic' offers and sales to XRP buyers over crypto asset trading platforms and Ripple’s 'Other Distributions' in exchange for labour and services did not involve the offer or sale of securities under [the Howey test].”

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