Chinese Economic Concerns Drag Down Stocks

Chinese economic concerns impact global financial markets, leading to decreased risk appetite, stock market declines, and rise of the US dollar.
Today, the dollar was sought as a safe-haven asset, resulting in an increase against a basket of major currencies, with the US dollar index trading up 0.2%. The DXY, which measures the performance of the greenback against a basket of six major currencies, traded within a range of 102 points.
In China, following the Evergrande crisis, it is now the turn of Country Garden Holdings, one of the largest real estate development companies in China. Moody’s downgraded Country Garden’s rating to “undesirable” amid a real estate crisis that seems to be unfolding in China.
Chinese economic data released today showed an unexpected increase in the trade surplus, rising from 491 billion to 576 billion. However, the trade surplus increase is not a positive sign at the moment, as it stems from a sharp 14.5% decline in exports. This economic uncertainty and concerns in China have led to decreased risk appetite, causing tension in financial markets.
he Japanese yen also experienced tension with a tendency to decline, especially after the release of some economic reports. The data revealed a decrease in the growth rate of cash income in Japan from 2.9% to 2.3%. Similarly, indicated a sharp contraction in household spending by 4.2%. Furthermore, Japanese bank lending data showed a decrease in growth from 3.1% to 2.9%.
All of this has heightened the state of tension related to Chinese economic concerns centered around construction and real estate sectors.

Financial Markets Performance amid Chinese Economic Concerns

While the US dollar managed to rise,the euro declined against the greenback from $1.10 to $1.09.
The British pound also declined, trading within a range of $1.27. The Japanese yen continued its second consecutive session of decline, trading at 143 yen to the US dollar.
In stock markets, the Japanese Nikkei index managed to rise by 0.38% as it was expected that poor Chinese and Japanese economic data would lead the Bank of Japan to maintain its stimulus policies for an extended period.
However, in China, the Shanghai Composite Index declined by 0.25%, and the Hang Seng Index dropped by 1.81%. European stock exchanges opened with tension, as the German DAX declined by 0.3%, and the French CAC decreased by 0.2%. In London, the British FTSE 100 also declined by 0.3%.
Regarding US stock index futures, Dow Jones showed a decline of about 0.3%, and the S&P 500 decreased by about 0.35%. The NASDAQ index, consisting of major US technology companies, declined by over 0.45%.
Financial markets still expect the Federal Reserve to keep interest rates unchanged for the remainder of the year,i.e within the current range of 5.25%-5.50% (source).
However, markets await tomorrow’s inflation data which isexpected to show a rise in consumer prices by 3.3%, compared to the previous inflation rate of 3.0%. If inflation was to increase beyond expectations, the Federal Reserve might consider another interest rate hike.
Therefore, Chinese economic concerns have combined with fears of higher-than-expected inflation.

Precious Metals decline despite Chinese Economic Concerns

Despite the tension in financial markets linked to various Chinese economic concerns, we find that gold prices have declined today. Gold touched levels around $1930 per ounce. Similarly, silver prices traded lower within a range of $23 per ounce. Precious metals were affected by the rise of the US dollar against a basket of currencies, leading to their decrease.

Markets Anticipate US Data and Federal Reserve Statements Today

After witnessing financial markets being influenced by various Chinese economic concerns and the release of German data confirming that inflation remains elevated in the largest European economy at 6.2%, markets today are awaiting the release of the US Trade Balance reading.
Markets expect the data to show a decrease in the deficit from $69 billion to $65.1 billion.
However, the values of US exports and imports will be closely monitored to determine the trade balance outcome, whether it is positive or negative. If we see declines in both exports and imports, the trade balance reading could be considered economically negative. Conversely, if there is an increase in both, it could be considered economically positive.
But if one rises and the other falls, the data is likely to be mixed and could cause fluctuations in the dollar.
On another note, the President of the Federal Reserve Bank of Philadelphia, Harker, will deliver statements that markets may be interested in. If his statements are more hawkish than expected and hint at the possibility of a rate hike, the impact of the statements on the US dollar could be positive.
However, if he confirms the Fed’s view of the need to monitor economic data and that inflation has begun to decline, the statements could be considered negative.