Stock markets witness bullish trend as traders track China news

"The dreaded fear of a deflationary spiral in China has reached 'code red'," says analyst

Web Desk

July 10, 2023

Major stock markets on Monday surged. — AFP/File

Major global equity markets demonstrated bullish trend on Monday tracking more weak data from China and hopes that Beijing would halt crackdown on the tech sector.

Traders were looking forward to US inflation data due to come out Wednesday as well as the start of earnings season at the end of the week.

It is pertinent to mention here that Chinese consumer inflation flattened last month and producer prices sank, indicating the world's number two economy continuing to struggle, AFP reported.

"The dreaded fear of a deflationary spiral in China has reached 'code red'," said Kelvin Wong, analyst at OANDA trading group.

"Time is running out for Chinese policymakers to negate the steepening rout in the internal demand environment that can potentially lead to further loss in consumer and business confidence."

Stock traders were looking at the inflation data as increasing pressure on Beijing to step up measures to support the economy.

"Those inflation reports, and worries about deflation, have fueled speculation that China will soon announce additional policy stimulus measures," said Patrick O'Hare at Briefing.com.

After a mixed session in Asia, European stocks were in higher in afternoon trading and Wall Street had a mostly positive direction as the session got underway.

Traders also continued to react to tech-sector developments in China.

After a years-long probe Ant Group has been hit with a near $1-billion penalty for "illegal acts", while Tenpay was ordered to pay more than $400 million.

Analysts said that while the figures were big, traders were cheered by the prospect that the firms could again concentrate on their business.

In a statement, the China Securities Regulatory Commission said "at present, most of the outstanding problems in the financial business of platform enterprises have been rectified".

The news, announced Friday, sent the New York-listed shares of Alibaba and Tencent surging, and their Hong Kong stocks followed suit Monday.

"The market likes it because scrutiny looks likely to be over and the fine, though big in absolute terms, is very manageable for such a big company," Vey-Sern Ling, at Union Bancaire Privee, said referring to Ant.

The surge in market heavyweight tech firms lifted the Hang Seng Index more than two percent at the open Monday, while there were also gains in Shanghai.

Later in the week, traders will get the latest reading of US consumer price inflation, which analysts expect to have slowed further in June to just above three percent.

"The actual reading will need to be substantially below three percent for the odds of a 25 basis point hike to fall meaningfully from the current level of around 90 percent, according to the CME FedWatch tool," said City Index analyst Fawad Razaqzada.

US Federal Reserve policymakers have been quite clear that they see at least one more rate hike being necessary to get inflation under control, but the data could reduce the chances of a another hike and thus would be welcomed by stock investors.

Companies begin reporting their second quarter earnings this week, with expectations that inflation has eroded profits of most firms.