Deflation in China but we shouldn't expect much of a response

Stock markets bounced back a little on Wednesday in what has been a relatively slow news day, with investors probably already having one eye on tomorrow's US inflation report.

Broadly speaking, trading has been choppy this week and there hasn't been an enormous amount driving it. We've had a selection of data from China over the last couple of days which hasn't been particularly promising, from weak trade figures on Tuesday to deflation readings today.

Subdued demand has been a constant theme this year in the world's second-largest economy. The powerful consumer rebound appears to be eluding it for a number of reasons and authorities are seemingly unwilling to do much about that, instead choosing slow and steady growth over the usual playbook of a turbocharged recovery. ​ ​

Another recovery in oil but it’s far from convincing

Oil prices are advancing again today after briefly dipping on Tuesday following some weaker Chinese trade figures. While that data did appear to trigger some profit-taking in crude, it was never going to be a game-changer as oil market dynamics have turned much more bullish recently.

Furthermore, weak global trade and an uninspiring Chinese rebound this year are not new stories. The numbers were naturally disappointing but nothing more. That the price recovered from the lows yesterday, following a quite large decline, to end the day in the green says everything you need to know.

From a technical perspective, it's not completely out of the woods yet despite recovering well. Momentum is still an issue and it has been waning over the last week or so even as price has made new highs. This could be a sign of exhaustion and unless that changes, these sell-offs will remain a concern and the rebounds unconvincing.

Gold drifts lower pressured by higher yields

The second half of the summer hasn't been kind to gold so far, with the yellow metal coming close to $2,000 once more before plunging back toward $1,900 where it spent most of late June and early July.

Higher yields, particularly in the US, and a stronger dollar have been primarily responsible for this but there's probably also an element of uncertainty in the economic data that's making traders a little nervous. We've finally reached the end of the tightening cycles - or extremely close to it - and now we're left wondering how long we'll be stuck here.

We've seen some significant improvement in some areas but not yet enough to convince policymakers that the case for rate hikes has passed, let alone that there is any case for easing again early next year. That narrative may change if we see some further improvement in the data, starting with the US CPI tomorrow, but for now, that nervousness is creeping back in.