– Chinese consumer prices flatline, bucking expectations of a 0.2% rise in June.
– The snapshot adds to worries about China’s decelerating economy, pushing down the FTSE 100 slightly in early trade.
– Oil prices dip, after last week’s gains, with Brent Crude hovering around $78 a barrel but supply constraints keep a floor under prices.
– Speeches by central bank policymakers in focus later including BofE governor Andrew Bailey.
– BT has announced that CEO, Philip Jansen, intends to stand down at an “appropriate moment” over the next 12 months.
By Susannah Streeter, head of money and markets, Hargreaves Lansdown
The continued loss of power in the Chinese economy is concerning investors, with consumer prices flatlining. The downbeat data comes ahead of the key inflation snapshot in the United States on Wednesday, which could determine how long the monetary squeeze will continue.
While inflation shows signs of stubbornness in other economies, disinflationary forces are at work in China, which risk tipping the world’s second largest economy into a deflation scenario. There will be some hope that lower Chinese prices will boost exports, but this has not been evident. Demand from consumers around the world for more stuff is dropping off as cost-of-living pressures bite, just as geo-political tensions bubble in the background. Concerns about a ratcheting up of a Chinese US trade war have been soothed by calming words from US Treasury Secretary Janet Yellen, following last week’s mission to Beijing, but still Chinese-made goods appear to be losing appeal. The disappointing data has pushed down the oil price, which had made gains at the end of last week on an easing of geopolitical tensions, as well as fresh supply constraints. Saudi Arabia’s pledge to continue to pump less oil for yet another month, combined with a production slump in Kazakhstan due to power cuts and a lower-than-expected fall in US oil stockpiles are keeping a floor under prices, even though China’s economic deceleration continues.
US futures also indicate a lower open on Wall Street as caution dominates ahead of the key inflation reading on Wednesday. Given the widely expected interest rate hike next week, and Friday’s jobs data showing earnings growth remaining steady, investors will be looking out for signs that core prices are staying stubborn. That could lead to a fresh bout of nervousness, given it could indicate higher rates will linger for longer. But a lower inflation print than expected could give fresh impetus to trading. A quartet of Fed policymakers are making speeches later today which will also be scrutinized for signs of which way the Fed will lean in terms of monetary policy in the coming weeks.
The Bank of England’s task of getting inflation back to its 2% target looks like a much harder prospect given how hot prices are still running, which is why the markets are pricing in rates to hit as high as 6.25%. So, a speech from the Bank of England governor Andrew Bailey later will be picked over, for any signs that this is justified or an overblown forecast. Two BofE policymakers have already highlighted other indicators further down the supply chain, like producer prices, are already showing a sharper fall in inflation, which should soon seep through more quickly to consumer prices. The question is whether their views gain ground around the table at the Bank of England.
BT’s shares have been erratic in early trade after it was announced a search has begun for a new chief executive. CEO, Philip Jansen, intends to stand down at an “appropriate moment” over the next 12 months Change at the top is usually unsettling, and it comes at a challenging time for BT with the company set to embark on a deep cost cutting drive.
Matt Britzman, equity analyst at Hargreaves Lansdown:
“Whoever takes the hot seat at BT will be picking up the reins on a difficult transformation, but one that has some promise. The wider strategy is unlikely to see any major changes, which involves the rapid buildout of the UK fibre and 5G networks, while significantly modernising and simplifying operations. Job cuts were the main headline a few months back at full-year results, with plans to cut up to 55,000 jobs by the end of this decade. This was a clear signal to the market that a much leaner operation is needed to deliver sustainable growth once the infrastructure is in place. Costs will likely be one of the first things on the docket when the seat has a new occupant. One thing’s for sure, there’ll be plenty of challenges to grapple with.
The news also comes amidst swirling rumours of a potential takeover for the business that’s seen lacklustre share price performance in recent years. This is speculation for now, and any bids would likely face intense scrutiny by regulators given BT’s critical role in the UK’s fibre and 5G infrastructure.”
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