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Recession in Europe
The year-over-year increase in consumer prices was 8.9% in July, an increase from the 8.6% increase seen in the previous month. This increase was again driven by the rising energy and food costs. The result was far higher than the increase of 8.7 percent that analysts polled by Bloomberg were anticipating would occur. The latest record high comes when worries of a recession are rising. Indeed, the region is experiencing a strengthening of the headwinds that have been there. The service sector is seeing less activity due to increasing pricing, while manufacturers report an even steeper customer demand decline.
Separate figures released on Friday indicated that France and Spain set new monthly inflation records this month. However, it is yet unclear how this would affect inflation, given that the price of energy is the primary factor driving prices thus far.
Recession in China
As a result of the recession that the country is experiencing, China's senior leadership has committed to maintaining enough cash. A significant portion of that cash is being hoarded within the banking sector rather than being distributed across the economy. Lenders and funds sitting on large amounts of liquid capital have been using this capital to purchase policy bank bonds, high-grade corporate paper, and the dollar. The cost of funding in yuan has decreased relative to the cost in dollars for a third consecutive month. All yields on a variety of one-year onshore debt with modest default risks have dropped to their lowest levels since 2020.
At the beginning of this month, China's sovereign yield curve reached its sharpest level in the past two years. A preference for debt with a shorter maturity might be indicated by the recent surge in front-end bonds.
US stocks peak since November 2020
On solid profits and hopes that the Federal Reserve would ease up on its monetary tightening, equities in the United States and Europe are poised for their most significant monthly gain since November 2020. Futures on the Nasdaq 100 increased by one percent after the US stock market reached its highest point in seven weeks on Thursday. Hermes International's stock price increased by more than 7 percent after the company joined LVMH and Kering in reporting outstanding earnings. This demonstrates that the luxury customer is resistant to rising inflation and concerned about an economic slowdown.
Following a decrease of 1.6 percent in the first three months of the year, the gross domestic product of the United States declined at an annualized rate of 0.9 percent during the second quarter. In most areas of the globe, a recession is defined as two consecutive quarters in which economic growth is negative. However, in the United States, a recession is not considered official until it is determined by economists working for the National Bureau of Economic Research. Even though both leaders wanted to meet in person, a phone discussion between the US Vice President Joe Biden and China's President Xi Jinping highlighted the animosity between the two countries.
