China Exporting Deflation, Good for Risk Assets
China’s producer price index (PPI) data suggests that the global liquidity-tightening cycle is coming to an end, which is positive for risk assets. China’s PPI fell 5.4% year-on-year in June, the steepest drop in seven years. This is likely to lead to lower export prices and deflationary pressures in the global economy. Persistent deflation in China will benefit western central banks that have been raising interest rates to combat inflation. However, the reaction to China’s PPI data has been muted so far, with bitcoin and S&P 500 futures showing little directional clarity. The focus is currently on the negative implications of a Chinese growth slowdown. Bitcoin is expected to rise once bond yields peak and there is a reversal in yields.
Key Points:
- China’s PPI fell 5.4% year-on-year in June, the steepest drop in seven years.
- Lower export prices and deflationary pressures are expected in the global economy.
- China’s deflation will benefit western central banks that have been raising interest rates to combat inflation.
- Reaction to China’s PPI data has been muted, with bitcoin and S&P 500 futures showing little clarity.
- Bitcoin is expected to rise once bond yields peak and there is a reversal in yields.
Hot Take:
The end of China’s deflationary trend could be positive for risk assets, including cryptocurrencies like bitcoin. As western central banks see lower inflationary pressures, they may adjust their interest rate policies. This could lead to increased investor confidence and stability in the market. However, the reaction to China’s PPI data suggests that there are still concerns about the overall economic recovery. It will be important to monitor how bond yields and inflation rates evolve in the coming months to gauge the impact on risk assets.
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