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Investment Institute
Weekly Market Update

Take Two: China exports see biggest drop since pandemic; US inflation rises

  • 14 August 2023 (3 min read)

What do you need to know?

China’s exports endured their steepest decline since the COVID-19 pandemic began during July as demand eased. Exports from the world’s second-largest economy fell 14.5%, more than the 12.5% decline anticipated and more than June’s 12.4% fall. China also slipped into deflation as its Consumer Price Index (CPI) fell 0.3% year-on-year, its first decline since February 2021. The weaker economic backdrop may lead to calls for more government stimulus. Elsewhere, President Joe Biden signed an order banning some new US investments in Chinese technology firms in key sectors including semiconductors and artificial intelligence, citing national security risks.

Around the world

US inflation rose for the first time in 13 months during July, chiefly because of soft base effects from weak July 2022 data. CPI rose 3.2% on an annual basis, up from 3.0% in June; however, it was below forecasts of 3.3% - and well below its June 2022 peak of 9.1%. Core inflation, which strips out more volatile food and energy prices, edged down to 4.7% from 4.8%, which may discourage the Federal Reserve (Fed) from raising interest rates at its next meeting. Last month the Fed unanimously voted to raise interest rates by 25 basis points, in line with expectations to between 5.25% and 5.50% — the highest level since 2001.

Figure in focus: 3.4%

Eurozone consumers expect inflation to fall to some 3.4% over the next 12 months, according to a European Central Bank (ECB) June survey, down from the 3.9% predicted in May – below July’s estimated rate of 5.3% but still well above the ECB’s 2% target. Sentiment was also slightly less pessimistic about the broader economic outlook - growth expectations for the next 12 months were -0.6%, compared with -0.7% in the previous month. The ECB has increased interest rates nine consecutive times, taking its main deposit rate to 3.75%, its highest in 23 years, in a bid to curb inflation.

Words of wisdom

Belém Declaration: A pact agreed by eight South American countries to tackle deforestation and promote more sustainable development of the Amazon Rainforest. The agreement outlined plans to prevent illegal mining and to cooperate on the policing of environmental crime as well as ensuring the wellbeing of the Amazon’s populations, including tackling poverty and inequality. However, the group failed to commit to a joint target to end deforestation by 2030. A separate agreement, called United for Our Forests, between 12 nations with major rainforests called for developed countries to help poorer economies finance combating climate change and protecting global ecosystems.

What’s coming up

A preliminary estimate of Japan’s second quarter (Q2) GDP growth is expected on Tuesday. The UK announces its unemployment rate for June on Tuesday, while Canada reports its latest inflation data – the UK follows up with its own inflation figures on Wednesday. A second estimate of Eurozone Q2 GDP growth is published on Wednesday while the Fed publishes the minutes of its latest monetary policy meeting. Japan follows with export figures on Thursday and inflation data on Friday. A final estimate of the Eurozone’s July inflation rate is announced on Friday.

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