A downbeat open in Europe has seen indices throughout the region head lower as markets ease back following a strong week of gains just gone. European luxury names have particularly been under pressure as traders weighed up the potential demand implications from a raft of concerning Chinese data that saw both retail sales and GDP fall short of expectations. The decline for US inflation has helped lift expectations of a September rate cut, with Fedwatch now signalling an incredible 96% chance that we see the FOMC ease by at least 25-basis points. Perhaps more notably, last week saw the possibility of two 2024 rate cuts move to become the base case scenario, with the chance of 50-basis points worth of easing by year end moving from 26% to 53%. However, this week sees the focus shift towards the outlook closer to home, with Wednesday’s UK CPI release providing the precursor to an interest rate decision from the ECB on Thursday.
A raft of overnight data shone a somewhat unfavourable light on the Chinese economic recovery, with GDP falling back to the lowest level in over a year (4.7%). In an economy that has long been propped up by a buouyant property market, the instability seen throughout that sector continues to play a key role in hampering economic activity. Perhaps the most concerning figure will have been the retail sales number, with the disappointing 2% reading serving to highlight the weak domestic demand picture within China as things stand. For countries and companies relying on the Chinese consumer, the recent slump in imports and retail sales will serve to highlight the ongoing demand struggles in China.
Looking ahead, Jerome Powell provides fresh testimony at the Economic Club of Washington, with traders keeping a close eye out for any notable shift in tone following Thursday’s CPI decline. Today marks the beginning of the first full week of earnings as we see the second quarter earnings season get underway. Coming off the back of Friday’s focus on the big banks, Goldman Sachs and Blackrock will maintain that theme before the bell today.
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