The Day at a Glance | July 10 2023

*Inflation in China continued to record negative figures during June.

*The Sentix investor confidence index for the Eurozone continued to deteriorate, falling to its lowest level in eight months.

*Vehicle sales in China falsely indicate a significant slowdown in June, with an annual 0.14% y/y figure, equivalent to 2.51 million units. This compares to a 27.9% y/y rate of growth (2.38 million units) in May and 82.7% y/y (2.16 million units) figure in April. However, this can be explained by slow sales at the beginning of 2022.

Economic environment

During June, the deflationary process for Chinese producers continued, while consumer inflation continued to decline. In the sixth month of the year, consumer prices recorded five consecutive negative figures, this time at -0.2% month to month (m/m), which led to a null annual figure (0.0%), below the consensus estimate of 0.2% (y/y). This also marked the lowest reading since February 2021. Breaking this figure down, non-food prices decreased -0.6% y/y, with transportation costs dropping -6.5% y/y. This was partially offset by an increase in food prices, which recorded 2.3% y/y growth, the largest figure in the past three months, driven by a rebound in vegetable and egg prices, despite a 7.2% decline in pork prices. Additionally, housing prices remained unchanged, while health-care related inflation stood at 1.1% y/y. With this, the underlying component logged a 0.4% y/y figure, the lowest since March 2021. Regarding producer inflation, it recorded its ninth consecutive negative reading and reached its fastest receding pace since December 2015 at -5.4% y/y. Most of its major components logged negative readings, led by raw material prices (-9.5% y/y) and extractions (-16.2% y/y). However, prices for daily use goods and clothing continued to increase, although at a limited pace (0.3% y/y and 1.0% y/y, respectively). Overall, inflation figures in China – which fell below market estimates on an annual basis – point towards weak domestic demand and stagnation in its economic recovery. It´s worth pointing out that the decline in producer prices is partly explained by a high comparison base. That being said, Prime Minister Li Qiang promised the implementation of specific and coordinated policy measures, which will be carried out in order to stabilize growth, ensure employment, and prevent risks.

The investor confidence index for the Eurozone, conducted by the Sentix Behavioral Research Institute, logged its third consecutive decline and reached an eight-month low in July at -22.5 points (-17.9 p. and -17.0 prev.). This reading can be explained by further deterioration in both the sub-index of current conditions and expectations, which also fell to their lowest level since November 2022, at -20.5 (-4.7) points and -24.5 (-6.2) points, respectively. The data suggests that the bloc is still in a recession with a negative outlook for its future, amidst monetary tightening, which has led investors to not expect support from the central bank.