China Inflation Raises More Red Flags as Producer Prices Tumble

Highlights

• China inflation numbers for June garnered interest this morning, with weak demand fueling recessionary fears.
• This morning, there are no economic indicators from Japan or Australia to draw interest.
• Later today, FOMC member commentary will also influence.

It was a quiet start to the week on the Asian economic calendar. There were no economic indicators from Australia or Japan to distract investors from the US Jobs Report and hawkish Fed bets.

However, economic indicators from China set the tone this morning, with inflation in focus.

In June, China registered zero inflation, with consumer prices falling by 0.2% in June. Economists forecast consumer prices to remain unchanged and for the annual inflation rate to hold steady at 0.2%.

Significantly, the Producer Price Index garnered more interest as investors fret over the economic outlook. In June, the PPI fell by 5.4% year-over-year versus a 4.6% decline in May. Economists forecast a 5.0% decline, signaling a deteriorating demand environment.

According to the June manufacturing and services sector PMI surveys, weak demand and a competitive environment forced firms to pass saving costs onto customers. Notably, input costs fell at the most marked rate since 2016 across the manufacturing sector.

The June surveys suggest further downward pressure on the Producer Price Index and headline inflation.

AUD/USD Price Action

Ahead of the inflation numbers, the AUD/USD fell to a pre-stat low of $0.66794 before rising to a high of $0.66961.

However, in response to the inflation numbers, the AUD/USD rose to a post-stat high of $0.66960 before falling to a low of $0.66891.

This morning, the AUD/USD was down 0.03% to $0.66897.

Next Up

It is a quiet day ahead on the European economic calendar, with no euro area economic indicators to affect market risk sentiment. The lack of stats will leave central bank chatter in focus. With no ECB members on the calendar to speak today, investors should monitor commentary with the media.

It is also a quiet day ahead on the US economic calendar. There are no US economic indicators to provide direction in the afternoon session. The lack of economic indicators will leave Fed chatter to influence.

FOMC members Barr, Bostic, Daly, and Mester are on the calendar to speak today. Members favoring to hit the brakes would catch the markets by surprise.

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