Written by: Susannah Streeter | Hargreaves Lansdown
- China’s economy loses more steam with a key services snapshot showing a sharp slowdown in activity in June.
- The FTSE 100 is also expected to open slightly lower amid ongoing concerns about global growth and inflationary pressures.
- OECD consumer prices snapshot shows the UK was the outlier in May with inflation rising, but falling in other countries.
- US Treasury Secretary Janet Yellen prepares for trade talks in Beijing amid warnings that curbs on metals exports were ‘just a start’.
There are fresh concerns about the global economy powering down as data from China’s service sector underlines how tepid the post-pandemic recovery has become, just as trade tensions between Beijing and Washington ramp up. This has put indices in Europe on the back foot, following falls in Asia, with Japan’s Nikkei falling 0.49% and Hong Kong’s Hang Seng down 1.38%.
Inflationary concerns have been weighing on the London market, and the OECD’s assessment that the UK is the only country in the G7 group of nations where the rate of price increases is still rising, is set to add to negative sentiment. The national consumer price index used by the Organization for Economic Cooperation and Development includes broader measures such as the cost of owning and living in a home. Given the painful rise in mortgage rates which is affecting homeowners and renters, alongside a super-tight labour market, it’s little wonder the UK is the outlier. In some other European countries and the US, much longer terms on deals are more of the norm, reducing the chance of a painful spike in borrowing costs. Year-on-year inflation in the G7 in May fell to 4.6% down from 5.4% in April with price increases slowing in the US, Japan, Canada, France, Italy and Germany, but in the UK, it rose to 7.9% in May from 7.8% in April. This may put further pressure on companies reliant on discretionary spending, as its becoming more clear how high housing costs are devouring disposable incomes.
There had been hopes the Chinese economy would steam ahead post-pandemic providing relief from the inflationary pressures pushing down growth in other countries, but the initial surge in activity is ebbing away fast. The Caixin China General Services PMI, which assesses a range of business conditions including output and orders, fell to 53.9 in June from 57.1 in May. Given it’s above 50, it still indicates expansion, but growth has slowed rapidly. There was an improvement in business sentiment, perhaps indicating expectations that authorities will move again to try and stimulate domestic demand as its become tougher to sell overseas given the cost-of-living crisis in key markets. The more uncertain outlook for China and ongoing concerns about recessions elsewhere potentially looming over the horizon are putting pressure on oil prices. Brent crude has fallen back below $76, retracing some of the gains made on Tuesday.
As Wall Street gets back in gear after the July 4th holiday, futures contracts indicate a lacklustre start to trading, with the S&P 500 slated to open slightly lower. Tech stocks focused on the semi-conductor chip industry will be in sharp focus, following China’s curbs on rare metal exports. There are hopes Treasury Secretary Janet Yellen will be able to calm increasingly troubled trade waters between the US and China when she holds meetings in Beijing tomorrow, but that may be wishful thinking. The rhetoric is being ramped up ahead of her visit, with warnings from an influential policy advisor, former vice commerce minister Wei Jianguo, that these controls were a heavy punch but ‘just a start’.
Related: Markets To Welcome Yellen’s Trip To Beijing To Calm Us-China Tensions