US inflation data leaves markets uncertain about Fed’s next policy move – UBS

Paul Donovan, Chief Economist of UBS Global Wealth Management, shares his views on the latest market developments.

China faces weaker domestic demand

“Last week’s U.S. inflation data left financial markets uncertain about the U.S. Federal Reserve’s next policy move. This uncertainty (and associated risk premiums) may be linked to policy mistakes from the Fed in June The rising state of consumer price inflation increases uncertainty given the flaws and volatility of this data The removal of forward-looking means that markets can follow their own policy whims without effective restraint from the Fed.

“China took a very different direction, with policy rates dropping overnight. China faces weaker domestic demand – retail sales in July were below last year’s level. Chinese consumers are saving rather than spending.

“A weaker domestic economy is a problem for China as external demand slows as international consumers begin to moderate their spending and shift to services. China is exporting TVs that no one wants anymore (and whose prices China can’t export a two-week holiday to Mallorca, which is all consumers seem to care about these days Data timing is relatively calm July German wholesale prices fell by compared to June. US NAHB housing indicator due – housing is already clearly reacting to the effects of the policy contraction.”

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