In the run-up to today’s most crucial US inflation report, US equities sank while rates rose. In the United States. Inflation is predicted to have risen from 3.3% to 3.3% in July. With core inflation remaining stable at roughly 4.8%. Any negative surprise on the inflation front could resurrect the Federal Reserve hawks. But we are still far from pricing another hike in September; activity on Fed funds futures indicates a greater-than-85% chance of a pause at the September FOMC meeting.
The primary positive risks include rising oil, crop, and rice prices, but potential downside pressure on housing could offset increasing raw material prices. According to a recent SF Fed publication, housing prices may experience considerable disinflation or deflation in the coming months. Every day, the United States spends $1.8 billion on interest payments.
According to the Peter Peterson Foundation, this figure will more than double in the next decade. With interest payments becoming the fastest rising component of the federal budget. As if that weren’t enough, Moody’s cut the credit ratings of ten small. And midsize US banks, citing greater funding costs. Potential regulatory capital deficits, and risks associated with commercial real estate loans. Speaking of banks, Italian banks sold out earlier this week in response to reports of a new windfall tax.
The latter prompted some risk-averse inflows into bonds until Italy clarified its new tax on banks’ windfall profits. Stating that the impact may be limited for particular banks. That the levy will not exceed 0.1% of a bank’s profits. firm’s assets. Banks that have previously raised their deposit interest rates “will not have a significant impact as a result of the rule approved yesterday.”
The 2-year yield in the United States has risen above 4.80%, while the 10-year yield has returned to 4.5% after rising to 4.20% following a rating by Fitch.
China is a troubled country due to US inflation.
The Chinese indices are fluctuating. Up due to steps announced by the Chinese government to help the economy; down due to falling export/import, deflation fears following another round of dismal trade, CPI and PPI statistics since the start of the week, and concerns that the US may block investments to China.
One intriguing point is that the Chinese stock market exhibits decorrelation with developed-country stock markets. CSI KraneShares Last week, the China Internet ETF saw $342.23 million in inflows, the most weekly inflow in 14 months.
However, impressive growth numbers are unlikely in China’s near future because the population is shrinking, the real estate crisis is fueling the local debt crisis, with Country Garden’s potential default on its debt now making headlines, investor and consumer confidence in the Chinese government will take time to be restored, and further restrictions on US investments in China, particularly in cutting-edge sectors like AI and quantum computing, could dampen appetite even further.
