China falls back into deflation - hopes rise of more stimulus

(Partial video transcript)

China deflation

Good morning. Welcome to IG's Early Morning Call. It's Wednesday the 9th of August. Let's take a look at the headlines as we await what looks to be a slightly stronger start on the European equity markets in the session.

The headlines are dominated by what's been happening overnight in China with the release of consumer price data showing that deflation has returned to the economy.

With the markets now waiting Thursday's, US CPI we are continuing to monitor what's going on around the world so far as CPI data is concerned.

Earnings

All this comes as we await Disney's earnings after the bell this evening. It's reporting fiscal third quarter (Q3) numbers and the report's also suggesting that the business is starting to engage with artificial intelligence (AI). Could that upset further striking actors in Hollywood?

And Lyft last night - one minute up, 22%, then it swung to a loss of 1.3% on the markets in yesterday's trade as a result of news from the chief executive that the high margin business is beginning to dry up. Take a look at what's happening. Volatility, it was all over the place yesterday. In fact, at one point yesterday we saw a spike up to levels not seen since the 1st of June.

And all of a sudden things began to look quite good for US traders. But then there was a big pullback. And in fact, we did see a green candle yesterday. But today a little bit of a drop down again which suggests that it's one of those days we're seeing risk assets come back into vogue.

European markets

And indeed this could be demonstrated here with the London markets. At the moment currently trading up a third of 1%, looking for a slightly stronger start at 7563, and it's the same story across the European markets with the start of today's trade looking particularly good after a recovery on the German markets yesterday.

You can see this candle here with the wick long, lower wick down here. Testing this rising line of support that's been in place since the low we had back on the 20th of December last year. So that rising line still very much in evidence. There's also this red line here, which is a supporting, guiding shadow, if you like on the markets indicating potentially further upside to go.

And indeed, this is just a retracement in the longer term picture. And we see this line here at support at 15,333 as the point to watch out for drawing a Fib on here from the lows we had there back on what was that low point we had there back on the 7th of July. And you can see we're just bubbling around the 61.8% retracement support level.

Yesterday we saw that spike lower down to the 76.4 before the rebound. And this, I think to me, looks as though potentially we could well get another swing to the upside in the markets. And some of this I think has really been brought to bear on expectations that China is potentially likely to see some more stimulus as a result of that swing down back into deflation.