• Italian government bond yields climbed
• Chinese stocks slipped after data showed a move into deflation
• Yuan is stable
Stock markets ticked lower in Europe and China amid a hiatus in the global trade tensions that led to volatility across asset classes in recent days.
The benchmark Stoxx Europe 600 dropped 0.3% Friday, bringing to a halt two days of gains. China’s Shanghai Composite Index fell 0.7%, while stocks in Japan and South Korea posted gains.
Italian government bonds were sold off heavily, pushing yields sharply higher after Matteo Salvini, the head of the far-right League party, sought to trigger elections.
Italian 10-year yields rose to 1.712% and German yields fell to minus 0.585%, pushing the difference between the two to 2.297 percentage points, its greatest since July 1. The gap has mainly been close to or below 2 percentage points in recent weeks.
China’s yuan remained stable following central bank moves to hold the currency at stronger levels and avoid further depreciation. However, the offshore rate to the dollar remains weaker than a previous key level, with the currency trading at 7.08 to the dollar.
Economic data out of China on Friday showed that producer prices have fallen into deflation for the first time in three years, as worries over the trade war with the U.S. sapped demand.
The central bank could loosen monetary policy in a bid to stimulate demand and lift producer prices, but a massive stimulus program would risk pushing consumer inflation higher and causing the property market to overheat, economists say.
“The authorities are caught between a rock and a hard place given the diverging trajectories of CPI and PPI, with the [yuan]’s recent plunge complicating matters further,” according to Pantheon Macroeconomics. “For the most part, however, we reckon that the is easing stance is likely to persist.”
Later on Friday, investors are likely to watch the U.S. Labor Department’s release of July producer prices data for signs of momentum in inflation. The gauge of business prices ticked higher in June but pointed to relatively subdued inflation. Economists surveyed by The Wall Street Journal forecast a rise in the producer-price index of 0.2% from a month earlier.
U.S. stock futures tied to the Dow Jones Industrial Average gauge were about 0.4% lower.
In commodities markets, Brent crude oil prices were flat at $57.38 a barrel. Gold was 0.3% at $1,514.20.
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