The FTSE 100 crept higher on Monday as investors shook off more downbeat Chinese economic data and looked forward to US CPI inflation data due to be released on Wednesday.
The FTSE 100 was 0.45% higher at 7,290 at the time of writing.
Chinese producer prices sank 5.4% in June, the worst decline since 2015, and piled further pressure on Chinese authorities to take additional steps to stimulate their economy.
“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,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.
“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.”
The frequency of poor Chinese economic data releases has increased recently, and many investors have positioned for imminent easing. There is an argument that additional Chinese stimulus is already priced into stocks, and the immediate market reaction to new measures will be muted.
The FTSE 100’s miners were little changed on Monday.
US CPI
Inflation remains the overarching theme in markets, and investors will closely watch Wednesday’s US CPI print for any hint of central banks’ next moves.
“Last week’s big pullback in global equities has hurt investor sentiment and triggered a ‘wait and see’ approach among many people who have become nervous about deploying more money in the markets until there is more clarity on the next central bank interest rate decisions,” said Russ Mould, investment director at AJ Bell.
“It seems likely the Federal Reserve, ECB and Bank of England will continue to raise rates in the fight against inflation. Labour markets are holding up better than expected and plenty of businesses continue to grow profits. However, the more rates go up, the bigger the risk of a hard landing – reaching the point where a lot more consumers and businesses cannot cope with the higher cost of borrowing and we suddenly see a slump in the economy.”