Another day and another bad set of economic data in China. The world’s second biggest economy of the world is struggling to boost their growth and maintaining their inflation. The economic data released today has shown that the CPI inflation number has slipped further as compared to the last month and printed the reading of 1.2%. If we combine this with yesterday’s trade balance number which shows that the import and export numbers are not encouraging at all, we have a very dangerous cocktail for the People Bank of China. The PBOC’s inflation target is 3% and the number released today is far off from that target- not a good news.
This will increase the heat on further stimulus efforts from the PBOC and the bank will have a little or no other option left, but to address this issue. However, given how much the bank has already done so far this year, perhaps they may hold off rushing into another decision and may want to see how the current ingredients will cook their recipe.
Back in the Europe, the European markets are trading lower and continuing their trend from the last week. This is on the back of the deadlock between Greece and its creditors. We have talked many times about the impact of this toe dragging negotiations between Greece and its creditors along with time value of this and yesterday, the DAX index which entered in the correction territory has provided us a further evidence that how frustrated investors have become. It seems like that both sides are labouring more in blaming each other rather than finding a middle ground. Greece will never cross its red lines and the creditors are pushing the country for it and now only the pressure of the 11th hour can bend the Greek hand.
The most ludicrous comments came from the French official who think that Eurozone will be better off without Greece not knowing how bigger the impact of this will be and being completely uninformed about the consequence of this for the French economy which is still the sick man of the Eurozone. Nevertheless, both sides, Greece and its creditors will continue their negotiation to strike a deal before the end of another deadline which was created yesterday.
As for the UK, the trade balance figures will be released this morning and the forecast is for 9.85 billion pounds. If the number does come below the expectations it will push sterling even further lower, which is already under pressure since yesterday after the rating agency warned of Brexit. Although, some would argue that such a warning is not appropriate however, I do believe that Brexit spells nothing but disaster on all ends for the UK. Mr Cameron does argue that Brexit will open the doors for new partners however he is forgetting to mention that currently Germany’s export to those partners is already five folds so why the UK cannot achieve that.