Solid Chinese Growth Data Fails to Lift Riskier Assets

European stock markets are mostly down. The FTSE 100 is outperforming and up on the day as Sterling dipped against EUR, USD and JPY. The DAX, by contrast, is lower and the Euro SToxx 50 down, despite weak Eurozone HICP inflation which was confirmed at just 1.3% year over year, down from 1.4% year over year in the previous month. U.S. stock futures are unchanged and Asian markets came under pressure late in the session, with the CSI 300 closing down -1.07% on the, despite slightly better than anticipated GDP numbers out of China. The ASX was down -0.17% at the close and while the Hang Seng managed to close with a gain of 0.31%, the index was well off intraday highs at the close. Japan was closed today. U.S. rate hike expectations may be pushed out, with futures now pointing to less than a 10% chance of a rate hike in September.

The ECB meeting on Thursday will be looming over markets, although we expect Draghi to stick to the message from June ahead of the summer break. Rightmove house price data for July showed a marked improvement in the annual rate to 2.8% year over year from 1.8% year over year.

June EMU Inflation was Confirmed at 1.3%

Final June EMU HICP inflation was confirmed at 1.3% year over year, in line with the preliminary number and down from 1.4% year over year in May. The breakdown confirmed that the deceleration in the headline rate was mainly due to lower energy price inflation, which dropped back to just 1.9% year over year from 4.5% year over year in the previous month. Services price inflation meanwhile accelerated to 1.6% year over year. Still, while core inflation moved up from the 0.9% year over year in May, at 1.1% year over year it remains far below the ECB’s 2% limit for price stability and prices for non-energy industrial goods rose just 0.4% year over year, so plenty there for the doves at the ECB to argue with.

China’s gross domestic product increased 6.9% in the Q2 on a year over year basis matching the results posted in the Q1, according to the National Bureau of Statistics. The number beat expectations of an increase of 6.8%. China saw larger than expected trade numbers last week, which gave some insight into the GDP report.  The second quarter numbers put the economy on a strong footing to meet China’s growth target of around 6.5% in 2017, which would give policymakers room to defuse financial risks.