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European equities slipped on Monday, extending last week’s decline while stock markets in Asia edged higher even as new data showed China’s economy on the cusp of deflation.
Europe’s region-wide Stoxx 600, France’s Cac 40 and Germany’s Dax all shed 0.2 per cent in early trading, while London’s FTSE 100 was steady.
Those moves came after China’s consumer price index dropped 0.2 per cent month on month, while factory gate prices fell at the fastest pace in seven years as demand for consumer and manufactured products waned.
Prices for Brent crude, the international benchmark, fell 0.7 per cent on Monday morning to $77.85 a barrel.
Major Asian markets closed in positive territory nonetheless, with Hong Kong’s Hang Seng index up 0.6 per cent and China’s CSI 300 gaining 0.5 per cent. Weak economic data bolsters the case for further interest rate cuts from the People’s Bank of China, as well as an injection of fiscal support, analysts say.
The US and Europe, in contrast, are grappling with stubbornly high inflation. Interest rates are expected to rise in both regions over the summer.
Stagnant price growth will only add to investors’ concerns over China’s stuttering recovery this year. Investors had tipped China to explode back into life after the removal of strict zero-Covid measures in late 2022.
“While inflation shows signs of stubbornness in other economies, disinflationary forces are at work in China, which risk tipping the world’s second-largest economy into a deflation scenario,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown.
Monday’s Chinese consumer price figures came data from the Bureau of Labor Statistics showed the US economy added 209,000 jobs in June. The employment report on Friday undershot expectations for the first time in 15 months.
Traders were “confused” by the numbers, said Mike Zigmont, head of trading and research at Harvest Volatility Management. “Is this strong enough for the Fed to keep hiking? Is this weak enough to keep the Fed on pause? Is it so weak compared to the past strong months that we’re looking at a soon-to-come recession?”
Contracts tracking Wall Street’s blue-chip S&P 500 slipped 0.3 per cent, while those tracking the tech-heavy Nasdaq 100 fell 0.4 per cent ahead of the New York open.
Investors’ attention this week will be focused on headline US consumer price inflation, which is expected to have slowed in June, easing pressure on the Federal Reserve to resume raising rates at its July meeting.
If year-on-year headline inflation were to fall to 3.1 per cent in June as expected, it would mark the lowest rate since March 2021.
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