Daily Market Commentary 10th August 2023

Chinese inflation has transitioned to deflation, with a contraction of 0.3%, while PPI fell 4.4%. Input prices have tumbled, and inflation has also crashed, but deflation can be a problem if experienced for an extended period. The Chinese economic rebound expected from the post-covid restrictions never reached the heights expected, as demand from a recessionary Europe and the US has hit manufacturing.  Chinese demand for resources has thus been far less than expected, which explains the soft commodity prices. Markets await the US inflation number, which will be released tonight. This is expected to bounce, from 3% to 3.3%, but the reaction will not be overly dramatic, as the Fed does not meet again until September. The US Dollar was steady, with the EUR trading 1.0970, while the GBP holds above 1.2700.

The commodity currencies consolidated under a steady reserve, with the AUD holding well above 0.6500, while the NZD trades around 0.6550. All attention turns to the US inflation numbers in an otherwise quiet data week.