Asian markets experienced another mixed session overnight, with China-linked indices underperforming after EU Commission launched an anti-subsidy investigation into Chinese electric vehicles. With the German car industry losing ground against their Chinese rivals, any protective measures taken by the EU Commission could risk a fresh trade spat between Europe and China.
European markets are in the red this morning, with a raft of UK data points signalling concerns over the direction of travel for European economic growth. Primarily, there has been consternation over the shock -0.5% July GDP figure, wiping out the 0.5% gain seen in June. The main determinant of this monthly contraction came from the healthcare sector, as industrial action by NHS senior doctors (two days), radiographers (two days), and junior doctors (five days) took their toll on output.
The volatility seen in UK growth makes it difficult to gauge the direction of travel for the economy, but the Bank of England will be rightly concerned when looking across the spectrum of weak data out of the UK. Sub-50 PMI readings, rising unemployment, and declines across construction, industrial, and manufacturing production do provide ammunition for those who believe the BoE will consider a halt to their continued push towards ever higher interest rates.
The US inflation report looks to dominate today, as markets look for a second consecutive upward push for prices. Consternation over a potential second peak for inflation may not be too justified for now, given that these two months were expected to see headline inflation rise thanks to base effects. There is hope that a decline in core inflation would help offset any risk-off sentiment that might come in the event of a headline CPI rise. However, commodity traders will be well aware of the ominous cloud building in the backdrop, with the 10-month high in energy prices coming as we see the likes of cattle, sugar, orange juice, and cocoa all trade around levels not seen for at least a decade.
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