China's economy is in a shaky state due to sluggish consumer spending, a worsening property market, and flagging exports. These strains are starting to impact global commodity prices and equity markets. China's growth target of 5% this year may not be impressive when considering the low base of comparison due to COVID-19 restrictions in 2022. The country is also grappling with the risk of deflation and a decline in domestic travel and consumer spending. Government intervention to curb property speculation and reduce debt levels may limit their ability to implement significant stimulus measures. As a result, China's economic growth may remain weak, akin to Japan's, potentially hindering its progress in surpassing the US as the world's largest economy.
EQUITY
U.S. stocks started positive after last week's losses, as some Fed officials suggested that the tightening cycle may end soon. The market is cautious ahead of the inflation data and second-quarter earnings, with investors eager to assess if inflation is moderating and its impact on interest rate expectations. Tech sectors gained on the positive U.S. Treasury Secretary Yellen visit to Beijing, although mega-caps fell, with Alphabet losing almost 3%.
GOLD
Gold prices remained stable as investors awaited the inflation report to assess the next move in U.S. monetary policy. While a weak nonfarm payrolls report lowered the dollar and raised hopes of a continuous pause or even rate cuts, Fed officials still expressed the need for a further hike, and the market agrees, with 95% betting on a 25-bps increase at the next meeting.
OIL
Oil prices recovered slightly on Tuesday as traders focused on supply cuts by Saudi Arabia and Russia and a weaker U.S. dollar. Traders are awaiting U.S. crude inventory data and economic reports from China to gauge future demand, while the EIA's short-term energy outlook released on Tuesday will provide insight into oil market conditions.
CURRENCY
The US dollar weakened to a three-week low as Federal Reserve officials signalled the nearing end of the tightening cycle, despite expectations of a 25-basis point interest rate hike this month. The euro reached a three-month high against the dollar, while the Chinese yuan slumped due to weak inflation data. The Norwegian crown strengthened, but the Australian and New Zealand dollars were affected by the decline in the Chinese yuan.
