After being laid to rest prior to the beginning of summer, global deflationary fears have been resurrected and are driving a sour mood across assets classes with equities as well as bonds trading softer. There are a number of factors driving the re-emergence of these fears, most recent of which are inflation numbers out of China which indicate a decline in producer prices along with a headline inflation figure coming in at lacklustre 1.6%. Combine this with recent comments from two separate Federal Reserve members pointing out that the lack of wage growth in the United States is a strong indication of slack in the labour force, which casts doubt on the existence of inflationary pressure within the American economy, and we have a recipe for a return to the deflationary fears which beset markets earlier in the year. In asian trading, the combined impact of these developments has seen the yen, kiwi and aussie dollars outpace the greenback as asian equities markets put in a mixed performance.
Moving onto a brighter story, better than expected employment numbers have seen levity in the sterling as the British economy posted the highest employment rate since records began in the early 70s. While the pound is higher against the euro, it still is within striking distance of its multi-month lows against its continental equivalent whereas it is trading sharply higher versus the greenback. The euro itself is also gaining on the greenback as the US dollar struggles to gain footing in the aftermath of a poor earnings report from JPMorgan which market participants have taken as a bellweather that all is not well stateside.
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