European shares fall after data shows China on the brink of deflation

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European stock markets slipped on Monday, continuing last week’s slide, while shares in Asia rose even as new data showed China’s economy teetering on the brink of deflation.

Europe’s region-wide Stoxx 600, France’s CAC 40 and Germany’s DAX all fell 0.2 percent in early trade, while London’s FTSE 100 was steady.

The moves came after China’s consumer price index fell 0.2 percent month-on-month, while factory gate prices fell at their fastest pace in seven years as consumer and manufactured products slumped in demand.

International benchmark Brent crude prices fell 0.7 per cent to $77.85 a barrel on Monday morning.

Still, major Asian markets closed in positive territory, with Hong Kong’s Hang Seng index up 0.6 percent and China’s CSI 300 up 0.5 percent. Analysts say the weak economic data strengthens the case for further cuts in interest rates as well as fiscal support from the People’s Bank of China.

In contrast, the US and Europe are grappling with extremely high inflation. Interest rates are expected to rise in both areas over the summer.

Steady price increases will add to investor concerns over China’s slow recovery this year. Investors advised China to become active again after the removal of strict zero-Covid measures in late 2022.

Susanna Streeter, head of money and markets at Hargreaves Lansdowne, said: “While inflation shows signs of persistence in other economies, deflationary forces are at work in China, which risk pushing the world’s second largest economy into a deflationary scenario “

Monday’s Chinese consumer price data from the Bureau of Labor Statistics showed the US economy added 209,000 jobs in June. The employment report on Friday beat expectations for the first time in 15 months.

Mike Zygmont, head of trading and research at Harvest Volatility Management, said traders were “confused” by the numbers. “Is it strong enough for the Fed to continue hiking? Is it weak enough to hold the Fed? Is it so weak compared to previous strong months that we may be looking at a recession soon?

Contracts tracking Wall Street’s blue-chip S&P 500 fell 0.3 percent, while contracts tracking the tech-heavy Nasdaq 100 fell 0.4 percent ahead of the New York open.

Investors’ attention this week will be focused on headline US consumer price inflation, which is expected to slow in June, easing pressure on the Federal Reserve to raise rates at its July meeting.

If year-on-year headline inflation falls to 3.1 per cent in June as expected, it will be the lowest rate since March 2021.