Stock markets: US change the decision supporting the action
Trump moved the deadline for the introduction of 10% tariff on some Chinese goods from September 1 to December 15 in an attempt to maintain demand for consumer goods – from cell phones to clothing – during the Christmas holidays. Otherwise, a new wave of tariffs would increase prices.
This news caused a strong positive reaction of markets, allowing U.S. indexes to win back the decline in the beginning of the week. Chinese indices Hang ChinaA50 and turned to growth, moving away from multi-month lows. Also markets an important psychological effect. Many times we watched as a sharp escalation of trade disputes is replaced by a certain discharge. The General trend behind these peaks and troughs while still in party crackdown, but the mood is far from panic.
Worrisome surge of inflation in the United States
At this stage, the new sales tax could further boost the already rising inflation. Latest estimate of this indicator in USA has exceeded expectations. Core prices (excluding food and energy) was up in June and July by 0.3 percent: it was the sharpest two-month gain since 2005. Then its dynamics has accelerated, reaching an annual pace of 2.2%. Recall that at this level he was last year, when the fed raised rates on a quarterly basis. This is a clear argument against reduction in rates that is able to further spur inflation.
Apart from US data, it is worth noting the sharp decline in business sentiment in Germany, where the ZEW index fell to its lowest level in 8 years. In addition, wholesale prices are reduced to the level of the last year, while consumer inflation marks a growth of 1.7% yoy.
China slows again
Published in the morning data from China also set up more on pessimism: after a surge in June, industrial growth slowed down to 4.8%, a new 17-year lows. Investment and retail sales also disappointed, returning to the slowdown. At the same time, consumer inflation is gaining momentum, according to published last week data.
In normal times, this would become an important sign of the health of the economy and consumer demand. Now, however, all at risk to turn into some kind of mild form of stagflation, as rising rates spur. At the same time, Central banks are not able to keep prices from increasing through the increase in rates, in order not to hamper the already weak economic growth.
The budget is filled with debt
Apart from inflation and industry worth mentioning fiscal policy. In China and in the US government too is actively trying to stimulate the development in “normal times”, so now the stocks of gunpowder exhausted. The fiscal deficit of the States from the beginning of January have already exceeded the levels for all of last year, and total debt exceeds 105% of GDP, and is 22.5 trillion. Note that the national debt of China is not so great – 9.5 trillion. or 62% of GDP, but most experts point to debt of individual provinces and cities. These amounts do not seem to be taken into consideration at first glance, but are doing their job, undermining resources to continue economic growth.
Picture of the day
Reacting to the news on the partial postponement of tariffs on Chinese goods, global markets returned to trend on the rise. And still not be overlooked that the resources for the growth of prices may be exhausted excessively stimulating approach. Then it will become clear that at the final spurt may not be enough fuse and possibilities of any government (because of the high level of debt), or the Central banks (due to already low rates).
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