Negative moods continue. Data on inflation in the euro zone

Concerns about further interest rate hikes by the Fed and the problems of the Chinese economy are the main factors responsible for the negative sentiment on the stock markets at the moment. American indices continue their downward correction, US 10-year bonds rose (yields) to the highest level since October 2022 and were just a hair away from reaching a level not seen since 2007.

Data on inflation in the euro zone

Yesterday, the US dollar did not change much. EUR/USD pair it is still trading around the 1,09 level. In the short term, declines predominate, however in the medium, the upward trend is still dominant. There will be no US data today. Yesterday's data from the labor market had little impact on volatility.

Today at 11:00 we will find out final data on inflation in the euro area, which may possibly bring some recovery in the valuation of the single currency. Next week, investors' attention will be focused on PMI data from Europe and the US, as well as the Jackson Hole Symposium. Quietly, the market will be counting on new news and a change in rhetoric by Powell, although he is likely to repeat what we heard after the July meeting.

The collapse of the housing market

There's a lot going on in China. Juan fell to 16-year low against the US dollar. This is the result of a series of disappointing economic data and negative news from the real estate and shadow banking sectors. We are talking about weak numbers representing real activity and credit data, CPI inflation below zero, the growing risk of insolvency of a large developer and the lack of payments for high-yield investment products by one of China's largest private wealth managers. In China, private wealth management and trust companies are key players in China's shadow banking system that provides financing to real estate developers, among other investment products and loans they offer. The prolonged collapse in the housing market has now caused market concerns about this systemwhich is largely opaque.

Fixing stronger than expected

In light of the recent decline in the market, China's central bank has injected liquidity through open market operations over the past three days in an effort to help stabilize markets. The "injections" were the biggest since February this year. This happened after Tuesday PBoC lowered the 7-day reverse repo rate by 10 bp to 1,8 percent, and the medium-term lending rate (MLF) by 15 bps to 2,5 percent.

To counter the pressure on the yuan, the PBoC continued to set a daily fixing that was much stronger than market expectations. The central bank also announced additional sale of bills of exchange in Hong Kong to increase currency liquidity in foreign markets this week. USD/CNY moved sharply up and broke 7,31 yesterday from 7,20 last week, though it fell sharply towards 7,28 later in the session after news that Chinese authorities ordered state banks to sell dollars to CNY support.

Source: OANDA TMS Brokers