Money

Deflation – China’s economy’s in big trouble

Published

2 years ago

August 10, 2023

ticker NEWS

China’s economy faces fresh challenges as it grapples with deflation in its consumer sector while factory-gate prices continue to decline.

The world’s second-largest economy is encountering difficulties in reigniting demand, prompting calls for additional policy measures to stimulate growth.

Concerns are mounting that China might be entering an era of sluggish economic expansion similar to Japan’s “lost decades.” During this period, Japan experienced stagnant consumer prices and wages, a sharp contrast to the rapid inflation observed elsewhere.

China’s initial post-pandemic recovery, which started with a strong first quarter, has lost momentum. Weakened demand both domestically and internationally, coupled with policies aimed at bolstering economic activity, have not yielded the desired results.

CPI down

The National Bureau of Statistics (NBS) reported a 0.3% year-on-year decrease in the consumer price index (CPI) for July, contradicting a Reuters poll that anticipated a 0.4% decline.

This marks the first drop since February 2021. Concurrently, the producer price index (PPI) has declined for ten consecutive months, registering a steeper-than-expected 4.4% fall.

This deflationary trend has led to apprehension among consumers and businesses, who are choosing to hoard cash instead of spending or investing, despite lower interest rates.

China’s consumer price index fall is the first negative reading since Japan’s in August 2021, raising concerns about its impact on major trading partners.

Gary Ng, Asia Pacific senior economist at Natixis, noted, “For China, the divergence between manufacturing and services is increasingly apparent, meaning the economy will grow at two speeds in the rest of 2023, especially as the problem in real estate re-emerges. It also shows China’s slower-than-expected economic rebound is not strong enough to offset the weaker global demand and lift commodity prices.”

Real estate crisis

These figures follow a recent report indicating a decline in exports and imports for July.

The real estate sector, a cornerstone of China’s economy, is also grappling with mounting debt issues. This economic environment has prompted consumers and businesses to be cautious with their spending and investment, even as interest rates remain low.

These developments have implications beyond China’s borders, raising concerns about the impact on its major trading partners and the global economy. While many major economies are grappling with inflationary pressures, China’s current deflationary situation sets it apart.

Despite these challenges, Chinese officials have downplayed the risk of prolonged deflation. Liu Guoqiang, deputy governor of the central bank, emphasized that deflationary risks are not expected in the latter half of the year, while acknowledging that the economy requires time to normalize post-pandemic.

China’s CPI decline in July was mainly driven by a steep 26% drop in pork prices, owing to a combination of weak consumption and ample supplies. However, on a month-on-month basis, the CPI actually increased by 0.2%, defying expectations for a decrease, fueled by a surge in holiday travel.

Money

Divorce spike in Australia triggers hidden tax risks

Australia sees increased divorce filings amid emotional challenges, with many couples overlooking significant tax pitfalls in their settlements.

Published

1 day ago

April 29, 2025

ticker NEWS

Australia sees increased divorce filings amid emotional challenges, with many couples overlooking significant tax pitfalls in their settlements.

Australia is facing a sharp rise in divorce filings over the past two months — but as couples navigate emotional breakups, many are missing major tax traps hidden in their settlements.

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Money

Stocks rebound despite tariff concerns and earnings anticipation

US stocks rebound amid tariff uncertainty; key earnings reports and economic data loom as volatility persists in the market.

Published

1 day ago

April 29, 2025

Ahron Young

US stocks rebound amid tariff uncertainty; key earnings reports and economic data loom as volatility persists in the market.

In Short

The stock market recovered after an early decline, led by companies like Boeing and IBM.

Investors are cautious ahead of upcoming economic data and potential trade developments, with projections of a 7% drop in S&P 500 earnings by 2025 due to tariffs.

A late recovery in the stock market reversed an early decline as dip buyers entered during a volatile day.

On Monday, the S&P 500 completed its fifth reversal of 1% or more in a month, matching the total seen throughout 2024. Gains were led by Boeing and IBM, while Nvidia fell following Huawei’s announcement regarding a new chip. Major tech companies, including Microsoft and Apple, are expected to report earnings soon.

Short-term Treasuries performed better, and the dollar weakened amidst ongoing economic data releases.

Economic data

The upcoming week promises substantial economic data, with reports on jobs and inflation due. A Texas manufacturing survey revealed significant weakness, with executives describing the tariff situation as chaotic.

Experts predict an eventful week, with potential for market volatility driven by various trade and economic headlines. Investors are particularly attuned to trade relations with China, with outlooks hinging on government actions.

Despite some executives remaining uncertain about tariff impacts, analysts are calculating potential effects on corporate earnings. Bloomberg Economics projects net income for the S&P 500 could drop around 7% by 2025 due to elevated tariff rates, compared to previous growth expectations.

Morgan Stanley suggests that a weak dollar may help US earnings, keeping the S&P 500 within a 5,000 to 5,500 range unless trade agreements with China are made, alongside a rebound in earnings and potential easing of monetary policy.

Money

Busy week: big tech earnings, U.S. jobs data

Busy week for markets with major tech earnings and U.S. jobs data shaping investor sentiment amid trade uncertainties.

Published

3 days ago

April 27, 2025

Ahron Young

Busy week for markets with major tech earnings and U.S. jobs data shaping investor sentiment amid trade uncertainties.

In Short

Next week, major tech companies, including Apple and Microsoft, will report earnings alongside key economic data, amid ongoing global trade concerns.

The S&P 500 has seen some recovery but remains down 10% since February, with investors anxiously awaiting the U.S. jobs report and economic growth indicators.

Next week, U.S. markets anticipate significant activity as big tech companies release earnings and crucial economic data is reported.

Investors will focus on corporate results from major firms like Apple and Microsoft, alongside the U.S. jobs report and first-quarter economic growth data. This comes amidst ongoing concerns related to global trade that could affect market stability.

The S&P 500 index has seen modest recovery recently, cutting its previous losses but still down roughly 10% from February’s peak. Optimism has been partially driven by indications of a softer trade approach from the Trump administration.

Market sensitivity

Michael Mullaney of Boston Partners noted that stock market sensitivity remains high, responding rapidly to any shifts in tariff news. Recent easing of trade tensions, including a pause in major tariffs announced by Trump, has contributed to market gains, but uncertainty continues.

In the forthcoming week, about 180 S&P 500 companies, accounting for over 40% of the index’s value, will announce their quarterly performance. Early reports indicate strong earnings growth, though some firms have lowered profit forecasts, highlighting potential challenges ahead.