China's woes start to hit asset prices

Jeremy Thomson-Cook
Jeremy Thomson-Cook 16 September 2021

GBP: Boris’ “plan B” offsets higher inflation data

EUR: ECB reiterate “inflation is transitory”

USD: Seeing the impact of China's growth/regulatory worries

Sterling

Ahead of next week’s Bank of England MPC meeting, sterling continues to trade in a very tight range. The recent batch of mixed economic data has only helped to exacerbate the threat of stagflation as growth begins to stall whilst inflation remains stubbornly high.

Yesterday saw yet another surge in energy prices with natural gas hitting a record high, marking a near doubling in price for the year. With the UK government's furlough scheme and boost to Universal Credit payments ending this month, combined with the spectre of a 1.25% rise in national insurance payments, the MPC certainly have their work cut out when trying to navigate the higher inflation versus lower growth tightrope.

Tomorrow sees the latest UK Retail Sales report for August which are forecast to rise 0.5% for the month and 2.7% for the year.

Euro

With the ECB making it crystal clear yet again at last week’s monetary policy meeting that QE/interest rates are going nowhere in a hurry, the single currency remains rangebound. Yesterday’s wage growth numbers across the Eurozone were very disappointing showing a fall of 0.4% for Q2 which only adds to the general slowdown story. ECB President Lagarde is due to speak later today but we expect nothing new from the “lady who does not taper”.

Markets will be watching tomorrow’s EZ inflation data for August very closely for signs inflation may be peaking.

USD

Despite the recent lower than forecast inflation data and yesterday’s weaker industrial/manufacturing output numbers, the dollar has largely stayed put as China’s economic woes force safe haven flows into the Greenback. The Chinese Government’s clampdown on internet stocks along with some very steep falls in commodity prices have caused huge volatility across all asset classes, highlighted by iron ore that had seen a doubling in price this year now halving since the beginning of July.

The latest Retail Sales report for August and the weekly employment report are slated for later today and will be very keenly watched by the markets ahead of next week’s FOMC meeting.

Elsewhere

Overnight we saw very good GDP numbers out of NZ, in stark contrast to its antipodean counterpart Australia reported very weak employment numbers as the Covid ravaged country continues to battle very strict lockdowns.

Today's Interbank Rates at 10:16 against sterling. Movement vs yesterday.

Euro €1.174  
US dollar $1.381 
Australian dollar $1.888 
South African rand R20.07
Japanese yen ¥151.1   ↓

Have a great day.