25 August 2023
Eurozone service sector weakness and high inflation sharpen ECB's rates dilemma. Business activity in the Eurozone fell deeper into contraction territory in August, while some inflationary pressures returned, survey data published this week showed. The HCOB flash Eurozone purchasing managers' index (PMI) survey, compiled by S&P Global, fell to 47 in August from 48.6 in July, as the downturn in the countries that share the euro currency spread further from manufacturing to services. PMI readings below the 50 mark indicate contraction in the sector while readings above 50 indicate expansion. Another weak PMI for the eurozone confirms a slowing economy with a recession looming on the horizon. On the other hand, inflationary pressures for services remain stubborn as wage pressures continue to be of a concern to the European Central Bank and a reminder that the interest rate hiking cycle is not over yet.
German producer prices fall at fastest pace since 2009. Producer prices in Germany fell more than expected in July, indicating that inflationary pressures in Europe’s largest economy are fast dissipating. Producers’ prices were down by six percent in July compared with the same month last year, when producer prices had soared as a consequence of the war in Ukraine, the German statistics office Destatis said on Monday. Analysts had expected producer prices to fall by 5.1 percent. It was the first year-on-year fall in producer prices since November 2020 and the sharpest decline since October 2009 during the Global Financial Crisis. Rapidly falling producer prices and lackluster business sentiment indicators have prompted some economic commentators to label Germany as “the sick man of Europe”, although such comparisons may be premature.
US existing home sales fall on high interest rates and supply shortage. Sales of previously owned US homes fell in July, constrained by a lack of inventory and higher interest rates. Sales declined by 2.2 percent in July compared to June to a seasonally adjusted, annualised rate of 4.07 million units, according to a report by the National Association of Realtors (NAR) published on Tuesday. Sales were 16.6 percent lower compared with the same month last year - the slowest July rate since 2010. While home sales have fallen by 22.3 percent through the first seven months of the year compared with the same period in 2022, prices are being propped up by buyers competing for a near-record low supply of properties. The median sales price across the US rose to $406,700 in July, marking its first annual increase since January and the second month in a row that it has been above $400,000, according to the NAR.
China cuts key interest rate amid economic slowdown. China's central bank has cut one of its key interest rates for the second time in three months as the world's second-largest economy faces several headwinds and struggles to recover after the pandemic. The People’s Bank of China on Monday cut the one-year loan prime rate (LPR), a benchmark for corporate loans, from 3.55 percent to 3.45 percent. The central bank held the five-year LPR, which is used to price mortgages, unchanged at 4.2 percent. China is in the midst of an economic slowdown and has recently fallen into deflation with prices falling year on year as slowing domestic spending hampers the country’s post-Covid economic recovery. The Chinese property industry is also in deep crisis, as the economic slowdown puts further pressure overextended property developers.
In case of any queries, please email us on [email protected] or call on 2275 3857.