The US earning season started with a wave of decline. China’s economy is slowing down

The US Producer Price Index, which shows the rate of inflation between factories, added 1.1% over the last month while it was expected to rise 0.8%. On an annualized basis, the index reached a record 11.3%. Meanwhile, yesterday Federal Reserve officials Waller and Bullard said that they favor a 75 basis point hike at the US central bank’s July meeting, making a more aggressive move of 100 basis points less likely. Fed funds futures now indicate a 31% chance of a 100 basis point increase and a 69% chance of a 75 basis point increase. But analysts still expect the dollar to rise as it benefits from the higher prospect of rate hikes than other global central banks.

Tech stocks rebounded from lows as Treasury yields fell amid a rebound in the US Dollar Index. But the banking sector showed weakness yesterday on reports. JPMorgan said it would temporarily suspend share buybacks after its second-quarter earnings report missed estimates, sending shares down more than 3%. Morgan Stanley also reported lower second-quarter earnings due to weaker results from its investment banking business.

EUR/USD traded below 1 yesterday for the first time in 20 years after Italian Prime Minister Mario Draghi’s party in the coalition government failed to support a vote of confidence in parliament and announced his resignation. However, the Italian president rejected the resignation. Inflation data will be released today in Italy. Analysts expect to see consumer prices rise by another 1.2%. But many experts are inclined to believe that the euro is not as weak as the dollar is strong due to the difference in interest rates between the US Federal Reserve and the ECB. At the moment, a decline of the EUR/USD quotes to the level of 0.9 is the most probable scenario.

Oil prices remain very volatile. Yesterday oil fell by more than $7 per barrel, but by the end of the session, the oil leveled off the wave of decline and closed at the opening level. Analysts’ opinions diverge. On the one hand, tighter monetary policy on the part of the US and planned release of reserves by the US and its allies put downward pressure on oil quotes. On the other hand, OPEC+ countries are producing much less oil than demand, causing shortages that put upward pressure on prices. Sanctions for Russia are also playing in favor of growth.

Asian markets mostly rose yesterday. Japan’s Nikkei 225 (JP225) gained 0.62%, Hong Kong’s Hang Seng (HK50) decreased by 0.22%, and Australia’s S&P/ASX 200 (AU200) was up 0.44% on the day.

Data released Friday showed that China’s economy contracted sharply in the second quarter. At the same time, annual growth also slowed sharply, highlighting the tremendous loss of activity due to widespread COVID lockouts that shook industrial production and consumer spending. China’s GDP fell by 2.6% in the second quarter compared to the previous quarter. On an annualized basis, GDP rose a modest 0.4% in April-June, missing the 1.0% growth forecast. For the first half of the year, GDP grew by 2.5%, well below the government’s target of about 5.5% for the year.