Chinese data decline drives commodities lower

• Stocks rise ahead of Trump-Putin meeting.
• Chinese data decline drives commodities lower.
• US PPI spike brings inflation concerns.

European markets are gaining traction ahead a of a key meeting between Trump and Putin in Alaska, raising hopes of a potential end to the war taking place on their doorstep. Trump outs the chance of a deal at 75%, although the sceptics will likely attach a much lower likelihood as Putin seeks to build on recent battlefield gains. A suggestion that Trump could open up both Ukrainian and Alaskan mineral mining for the Russians does highlight the efforts Trump has gone to appease Putin in a bid to strike a deal. Although finding a deal that appeases both Russia and Ukraine will likely prove easier said than done.

Overnight data out of China provided a rather concerning assessment of the direction of travel for the world’s second largest economy. A raft of weaker Chinese data points saw the weakest industrial production figure since November, a seven-month low for retail sales, and the joint highest unemployment rate in five-months. From a market perspective this has helped weaken the yuan, with key commodities such as copper and oil also losing traction as a result. However, from another perspective, the potential for additional stimulus and improved trade relations with the US do bring cautious grounds for optimism.

Financial markets are attempting to weigh up the implications of yesterday’s PPI inflation report, with the 0.9% surge in both headline and core July metrics sparking a surge in the dollar and weakness across gold, equities, and crypto. The spike in the two-year yield highlights the perception that this could quell the easing activity of the Fed, with the chance of a September 50bp rate cut largely off the table for now. Meanwhile, the base case scenario has now shifted from three cuts this year, to just two. Nonetheless, with a largely positive Q2 earnings season drawing to a close, trade concerns easing, and a potential Russia-Ukraine deal in the offing, a slightly slower pace of easing shouldn’t necessarily derail markets in any meaningful way. Instead, the risk here is whether the PPI figure is the first indication of a major uptick in consumer inflation that could throw a curveball for markets as they weigh up a potential stagflationary environment of high inflation and job market weakness.