Finimize - 🚩 China's red flag

What’s going on here?

Fresh inflation data out on Tuesday could justify a pause on the Federal Reserve’s (the Fed) enduring rate-hike spiel.

What does this mean?

Inflation’s like your friend’s up-and-down relationship: it’s talked about a lot, it sounds kind of toxic, but it matters to you and so you care about it. Well, this week inspired some hope of a happily ever after. The Fed’s been tipped to pause its rate-hiking tirade, even if for just a short time. And this latest data’s added weight to those predictions: May’s prices were up a less-than-expected 4% from the year before, the smallest increase for two years. And sure, core inflation – excluding volatile prices like food and energy – was a bit sharper at 5.3%, but it’s still moving in the right direction.

Why should I care?

For markets: The devil’s in the detail.

Numbers like that bundle a heap of categories together. And that’s what matters: even if we pay more for some costs and less for others, the total should average out. Still, though, it’s hard to wrap your head around today’s trends: gas and oil prices fell by 6% and 8% respectively from April to May, but shelter and transport costs are still burning hot to the touch. And that cacophony of volatility will keep the Fed on its toes.

The bigger picture: Moods swing.

You’d think treacherous inflation and uncertain interest rates would’ve done a number on the stock market, but investors have been surprisingly upbeat so far. Even when inflation hit boiling point last year, the market seemed optimistic that the climate would return to a simmer in the months ahead. And now that the economy’s getting chillier, the market’s more focused on a buzzing, artificial intelligence-fueled future. So it’s understandable if you want to play Goldilocks and believe the environment’s just right, but remember: the market can turn cold faster than your morning serving of oatmeal.

What’s going on here?

China’s central bank cut a key interest rate on Tuesday to entice some bulls into the country’s oh-so-fragile shops.

What does this mean?

China’s reopening was expected to bring the type of energy, excitement, and unbridled, over-budget spending usually reserved for Walt Disney World on the first day of Christmas break. In reality, though, the economy’s been strolling on like a tired parent wielding a half-eaten giant turkey leg. So to give the country a kick in the pants, the People’s Bank Of China cut a short-term lending rate from 2% to 1.9%. That might sound small, but it comes straight on the heels of China’s six biggest banks trimming their deposit rates last Thursday. Put it all together, and it’s clear the government’s trying to breathe life into the world’s second-biggest economy, stat. So you can bet the country has more economy-aiding tricks up its sleeve, and may well cut medium-term interest rates on Thursday too.

Why should I care?

For markets: Confidence is key.

Supply and demand are like a pair of lovestruck teenagers: no matter what gets in their way, they’ll manage to climb through a window and end up back together. But two years of on-again, off-again lockdowns has brought a meddling third party into the mix: whiplashed Chinese consumer confidence. See, pandemic-scarred folks within the country are saving instead of spending. That’s a problem: those supply and demand corrections have allowed the rest of the world to get on with life, but China still can’t shake its pandemic past.

The bigger picture: Let’s all get along.

China’s tactics have brought the country’s currency to a six-month low against the dollar, which could float both China and America’s boats. The weak currency will make Chinese exports more appealing to other countries, and inflation-filled America certainly wouldn’t complain about importing more for less. That’s if the two can avoid political mud-slinging, mind you.