Gold Faces Weekly Decline as US Inflation Spike Dampens Fed Rate-Cut Hopes

Economic

Commodity

Summary:

Gold prices are set for their first weekly drop in weeks, as stronger-than-expected US inflation data reduced market confidence in an imminent Federal Reserve rate cut...

Inflation Data Shifts Fed Rate-Cut Expectations

Gold hovered near $3,340 per ounce after falling 0.6% in the previous session, pressured by a US wholesale inflation report showing the sharpest annual acceleration in three years for July. This data pushed bond yields and the US dollar higher, undermining gold’s appeal as a non-yielding asset priced in dollars. The relationship here is direct: higher yields and a stronger currency typically reduce gold’s relative attractiveness to investors seeking returns.

Earlier in the week, swap markets fully priced in a September Federal Reserve rate cut. However, post-data, the probability fell to around 90%, reflecting reduced confidence. Gold usually thrives in a lower-rate environment as borrowing costs drop and the opportunity cost of holding the metal diminishes, meaning the shift in expectations has exerted downward pressure.

Performance and Long-Term Drivers

Despite this week’s weakness, gold remains one of the best-performing major assets in 2025, up more than 25% year-to-date, with most gains occurring between January and April. The price surge has been driven by safe-haven demand amid persistent geopolitical and trade tensions, as well as robust central bank buying. These factors have had a reinforcing relationship with gold’s price: heightened risk prompts investor inflows, while sustained official sector purchases add structural support.

Attention now turns to the Alaska summit between US President Donald Trump and Russian President Vladimir Putin. Trump has warned of “very severe consequences” if Putin rejects a Ukrainian ceasefire proposal. If tensions escalate, the resulting uncertainty could spur renewed safe-haven flows into gold. Conversely, a breakthrough could ease geopolitical risk premiums, limiting upside momentum.

Market Technicals and Price Dislocation

Recent confusion over potential US tariffs on gold bars caused a temporary surge in the premium for New York futures over London spot prices. Trump’s subsequent statement that no levy would be imposed narrowed this gap, although formal policy clarification is still awaited. Spot gold in Singapore rose 0.2% to $3,342.68 an ounce as of 2:42 p.m. local time, but remains on track for a 1.6% weekly decline. The Bloomberg Dollar Spot Index eased 0.2%. Silver and palladium were steady, while platinum posted modest gains.

While short-term sentiment has softened due to inflation data and shifting Fed expectations, the broader backdrop of geopolitical uncertainty and continued central bank accumulation keeps gold’s medium-term outlook resilient. Price movements in the coming week will likely hinge on the Alaska summit’s outcome and whether inflation pressures persist enough to delay monetary easing. A sustained break below current levels could test investor conviction, but any flare-up in political or trade tensions may quickly reassert upward momentum.

Source: Bloomberg

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Forex

Political

Economic

Asia Market Wrap – Japan, China Data, Stocks Steady

Hong Kong stocks fell 1.2% after data showed China’s economy slowed in July, with weak factory activity and retail sales. This suggests Donald Trump’s trade war is affecting the world’s second-largest economy. Meanwhile, Japanese stocks rose 1% as the country’s economy grew faster than expected last quarter.MSCI’s broad Asia-Pacific index (outside Japan) dropped 0.2%. Japan’s Nikkei 225 bounced back 1.6%, nearing a record high after a big drop on Thursday, which ended its six-day winning streak. Australian stocks rose 0.7%, while Hong Kong stocks fell 1.1%.

China’s CSI 300 index went up 0.8% after weaker-than-expected July economic data, like retail sales and industrial production, raised hopes for new government stimulus. Markets in India and South Korea are closed for holidays.Earlier, hopes for US monetary easing had boosted market confidence, with traders expecting a quarter-point rate cut. However, US wholesale inflation rose in July at its fastest pace in three years, causing traders to lower the chances of a September rate cut to 90%, down from being fully certain before.

Japan GDP Posts Upside Surprise

Japan’s economy grew faster than expected in the second quarter, with GDP rising 1.0% annually, marking five straight quarters of growth. This was supported by strong exports and capital spending, despite US tariffs. The growth beat market expectations of 0.4% and followed a revised 0.6% rise in the previous quarter.

Japan GDP Surprise, China Data Disappoints, Trump-Putin Meeting In Focus As DAX Advances Following Breakout_1

Source: LSEG

However, analysts warn that US tariffs and global uncertainties could hurt Japan’s economy in the coming months, especially for automakers trying to keep prices low for US customers.

China Data Disappoints as Factory Output and Retail Sales Slump

China’s factory output growth hit an eight-month low in July, and retail sales slowed sharply, increasing pressure on policymakers to boost the $19 trillion economy with more stimulus.Challenges include US trade policies, extreme weather, tough domestic competition, and a weak property sector. Industrial output grew 5.7% in July, down from 6.8% in June and below the 5.9% forecast. Retail sales rose 3.7%, the slowest since December 2024, missing the expected 4.6% increase.

Japan GDP Surprise, China Data Disappoints, Trump-Putin Meeting In Focus As DAX Advances Following Breakout_2

Source: LSEG

European Open – European Indexes Higher Ahead Trump-Putin Meeting

Heading into the European Open, Pan-region futures rose 0.5%, German DAX futures increased 0.5%, and FTSE futures also gained 0.5%.Investors are keeping a close eye on US President Donald Trump’s meeting with Russia’s Vladimir Putin on Friday, aimed at ending the war in Ukraine.There’s concern about how long any agreement might last, and European leaders worry the US and Russia could make big decisions that leave them out or pressure Ukraine into a bad deal.

If the Trump-Putin Alaska summit gets positive feedback, European stocks are likely to see a boost. The details matter, and Europe is unlikely to fully welcome Russia, even if peace is restored. This means defense stocks might slow down their steady rise but won’t face major setbacks.On the FX front, The euro and British pound stayed mostly unchanged after dropping 0.5% and 0.3% in the previous session, ahead of US retail sales data.

The Japanese yen strengthened thanks to surprisingly strong economic growth, with exports holding up well against new US tariffs.The Australian dollar remained steady, while the Chinese yuan fell from a two-week high due to weaker-than-expected economic data.

Currency Power Balance

Japan GDP Surprise, China Data Disappoints, Trump-Putin Meeting In Focus As DAX Advances Following Breakout_3

Source: OANDA Labs

Geopolitics will be in the news as the Trump-Putin meeting gets underway while we also have the Jackson Hole Symposium where all eyes will be on Fed Chair Jerome Powell.From a data perspective, the US session brings retail sales numbers will give a glimpse to consumer demand but the bigger one could be the Michigan Consumer Sentiment data.It will be interesting to see where survey respondents see inflation expectations over the 12 months in particular.

Japan GDP Surprise, China Data Disappoints, Trump-Putin Meeting In Focus As DAX Advances Following Breakout_4

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Chart of the Day – DAX Index

From a technical standpoint, the DAX index has continued to advance following yesterdays breakout.

DAX Index Two-Hour Chart, August 15. 2025

Japan GDP Surprise, China Data Disappoints, Trump-Putin Meeting In Focus As DAX Advances Following Breakout_5

Source: TradingView.com

Source: OANDA

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Risk Warnings and Disclaimers

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Gerik

Economic

Demographic Advantage Yet Insufficient for Future Demands

According to the report presented to the National Assembly Standing Committee on August 11, 2025, Vietnam’s workforce reached 53 million people aged 15 and above by April 1, 2024, accounting for over 52% of the population. The trained labor rate stood at 69%, and the national average monthly income in 2024 was 7.7 million VND. Labor productivity rose by 5% annually from 2021 to 2024, nearly 1.3 times higher than in 2021. However, these promising figures mask deeper concerns about workforce quality and readiness for high-tech industry demands.

Despite economic growth, 64.6% of the workforce remains in informal employment with poor working conditions and low wages. Only 28.3% of workers hold official qualifications or certifications, while nearly 38 million workers are untrained. Even in foreign direct investment (FDI) enterprises typically requiring high skills there has been a decline in the share of qualified employees, from 25.5% in 2021 to 21.69% in 2024. This downward trend signals a persistent gap in the quality of the labor force, especially in sectors driving innovation.

Mismatch Between Training Output and Market Needs

The gap between academic training and labor market demand is growing. While industries are increasingly driven by automation, AI, and sustainability, the majority of university students continue to pursue economics, finance, and law. Core science and agriculture programs are shrinking. This mismatch leads to a high rate of job mismatches, with approximately 30% of graduates working outside their trained fields. Many are unable to meet the soft skills, adaptability, or professionalism required by employers, pointing to systemic issues in both curriculum and pedagogy.

Industrial hubs like Hai Phong face acute labor shortages. As more provinces develop manufacturing zones and birth rates stagnate, competition for labor has intensified. Enterprises, particularly those in high-tech manufacturing, report difficulties in recruiting skilled workers. This indicates a causal link between industrial decentralization and the thinning of local talent pools, raising alarms about workforce planning and distribution.

Weak Collaboration Between Enterprises and Education Systems

The absence of strong links between schools, vocational centers, and businesses is a key factor exacerbating the labor mismatch. Despite willingness from corporations to invest in workforce development, current policy lacks incentives. LG Vietnam’s CEO stressed that vocational school graduates still fall short of employer expectations. Without tax relief or subsidies to support on-site training initiatives, corporate investment in education remains minimal, further weakening the talent pipeline.

At the parliamentary session, Vice Chairman Nguyen Khac Dinh proposed a five-pillar strategy: learning, utilizing, retaining, connecting, and innovating. Learning emphasizes restructuring the national education system from primary to vocational, shifting from exam-driven learning to work-oriented training. Utilizing calls for matching graduates with relevant jobs to prevent skill waste. Retaining focuses on keeping top talent both in public institutions and within the country by rotating experts across sectors to promote innovation, similar to Japan and South Korea. Connecting advocates stronger coordination between academia and industry to create a sustainable labor ecosystem. Innovating highlights the need for digitization and agile governance to keep pace with global trends.

Golden Demographic Window But It’s Closing Fast

Vietnam’s current population structure provides a rare opportunity to advance national development. However, this advantage is time-sensitive. The shortfall in high-quality workers, particularly in strategic fields such as AI, semiconductor engineering, and green technology, could soon limit growth potential. If no drastic and coordinated interventions are made, the country risks missing its historical window for industrial upgrading and innovation leadership.

Vietnam is at a critical crossroads where demographic strength alone is no longer sufficient to sustain future economic ambitions. The relationship between training quality, skill application, and labor market fit is not merely correlative but sequentially linked in a feedback loop. Weak connections and underinvestment in applied training contribute to skill erosion and talent loss. The nation must urgently shift from a cost-competitive labor model to a knowledge- and innovation-driven workforce strategy. Building a skilled, adaptive, and connected workforce is not just a priority it is the foundation for sustainable national resilience in an increasingly tech-driven global economy.

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James Whitman

Political

South Korea intends to restore an agreement to suspend some military activity along the border with North Korea, President Lee Jae Myung said on Friday, as his government seeks to improve relations between neighbours still technically at war.

The 2018 military accord was designed to curb the risk of inadvertent clashes, but broke down after a spike in tensions.

WHAT HAPPENED IN 2018?

The so-called Comprehensive Military Agreement (CMA) signed between the two Koreas was the most substantive deal to result from months of historic meetings between leader Kim Jong Un and then-South Korean President Moon Jae-in.

On September 19, 2018, South Korea's defence minister and his North Korean counterpart signed the CMA in the North's capital, Pyongyang, accompanied by polite applause from the onlooking leaders.

Under the CMA, both countries agreed to "completely cease all hostile acts against each other" and implement military confidence-building measures in air, land and sea domains.

The measures included the two sides ending military drills near the border, banning live-fire exercises in certain areas, the imposition of no-fly zones, the removal of some guard posts along the Demilitarized Zone, and maintaining hotlines.

On the ground, both sides agreed to completely cease artillery drills and field training within 5 km (3 miles) of the Military Demarcation Line (MDL) between the countries.

At sea, they installed covers on the barrels of naval guns and coastal artillery and closed gun ports in a buffer zone along the sea border.

MILITARY DEAL FALLS APART

With inter-Korean and denuclearisation talks long stalled, the military accord started to fracture in recent years amid drills and shows of force along the fortified border between the Koreas as they accused the other of breaches.

North Korea's launch of a spy satellite in 2023 further ratcheted up tensions on the Korean peninsula, and the countries walked away from the confidence-building pact.

South Korea's National Security Council that year moved to "suspend the effect of Article 1, Clause 3" establishing no-fly zones close to the border in the 2018 military agreement, enabling Seoul to restore reconnaissance and surveillance activities along the border.

South Korea's military then restarted aerial surveillance in border areas, the defence ministry said.

North Korea in return said its army would "never be bound" by the pact, ripping up the agreement and vowing to restore all military measures it had halted under the deal.

In June 2024, former South Korean President Yoon Suk Yeol declared a complete suspension of the military pact in response to North Korea's move to send hundreds of rubbish-stuffed balloons across the border.

Later that year, as hostilities increased state-run news agency KCNA said North Korea amended its constitution to designate the South as a "hostile state".

HOW WILL PYONGYANG RESPOND?

President Lee, who won a snap election in June, has sought to re-engage Pyongyang after a period of cross-border tension and shown a willingness to return to dialogue.

He touted on Friday his government's efforts to ease tensions, including halting the launch of balloons floated by activists with anti-North Korea leaflets and dismantling loudspeaker propaganda broadcasts across the border.

How Pyongyang might respond remains unclear. Top North Korean officials have in recent weeks dismissed moves taken by Lee's new liberal government to ease tensions.

Some analysts are also sceptical about the short-term prospects of a favourable response from North Korea to such overtures.

Source: Reuters

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FastBull Featured

Daily News

[Quick Facts]

1. Bessent denies pushing for rate cuts, says models show 150 basis points needed to reach neutral rate.

2. "Trump-Putin Meeting" countdown: Trump reveals more details of the summit.

3. U.S. announces temporary waiver of some sanctions against Russia.

4. Presidential meeting between Russia and the U.S. looms, four key topics in focus.

5. New Zealand manufacturing activity rebounds in July.

6. Musalem: Too early to make a call on September rate cut.

7. Daly: No need for 50 bps rate cut.

8. U.S. July PPI surges.

[News Details]

Bessent denies pushing for rate cuts, says models show 150 basis points needed to reach neutral rate

U.S. Treasury Secretary Bessent stated he is not calling for the Federal Reserve to implement a series of interest rate cuts, but rather simply pointing out that models indicate the neutral interest rate is about 1.5 percentage points lower than the current level. " I have not told the Fed what to do," Bessent said in an interview on Thursday, referring to his comments the previous day that the Fed could start a series of rate cuts from now on. On Thursday, Bessent clarified that he meant approximately 150 basis points in rate cuts are needed to reach the neutral rate.

"Trump-Putin Meeting" countdown: Trump reveals more details of the summit

On August 14th, local time, U.S. President Trump provided new details about his upcoming meeting with Russian President Putin. In an interview with Fox News that day, Trump discussed the Putin meeting, stating he believes the Russian president will work toward an agreement. "This meeting sets up the second meeting, but there is a 25% chance that this meeting will not be a successful meeting," Trump said. Trump added that the meeting with Putin on the 15th would lay the groundwork for a second meeting to reach an agreement, and if issues remain unresolved, sanctions would be imposed. He noted that border and territorial issues would involve a process of mutual concessions. Trump did not elaborate further on "reaching an agreement," "a second meeting," or "sanctions." If successful, he said he would call Ukrainian President Volodymyr Zelenskyy and European leaders. Trump indicated a post-meeting press conference would be held regardless, but he was unsure if it would be a joint event.

U.S. announces temporary waiver of some sanctions against Russia

The U.S. Department of the Treasury announced it will temporarily waive certain sanctions against Russia to facilitate transactions necessary for preparing the Russia-U.S. summit in Alaska, aiming to advance the meeting's preparations. U.S. President Trump is scheduled to meet with Russian President Putin in Anchorage, Alaska, on August 15th, with a focus on advancing a ceasefire agreement in Ukraine. If progress is made, more follow-up meetings with Ukrainian President Zelenskyy may be arranged after the summit. According to Britain's Daily Telegraph, Trump plans to propose a package of economic incentives, including allowing Russia access to some natural resources in Alaska, easing certain sanctions on Russia's aviation industry, and permitting Russia to sell rare earth minerals mined from Ukrainian territories currently controlled by Russian forces, in a bid to secure a Russia-Ukraine ceasefire.

Presidential meeting between Russia and the U.S. looms, four key topics in focus

Analysts predict the upcoming Russia-U.S. presidential meeting may cover four key topics based on recent statements from all sides. 1. Ceasefire in Ukraine. According to reports, U.S. President Trump stated in a video conference with European leaders on August 13th that his goal in meeting with Russian President Putin is to secure a ceasefire in Ukraine. Kremlin aide Yuri Ushakov also noted on August 14th that resolving the Ukraine crisis will be the core topic of the upcoming Russia-U.S. presidential meeting.

Long-term solution to the Ukraine crisis. Ushakov previously indicated that the two leaders will discuss long-term solutions to the Ukraine crisis during their talks. Trump has mentioned a potential Russia-Ukraine peace agreement involving territorial exchanges and has suggested such swaps to end the conflict. However, Trump clarified on August 13th that the meeting with Putin will not address territorial division. Both Russia and Ukraine have stated they will not make concessions on territory. The Russian Foreign Ministry said Russia's federal territorial structure is enshrined in its constitution, while Ukraine has emphasized its opposition to exchanging territory for peace.Normalization of Russia-U.S. relations. Ushakov stated on August 14th that, beyond the Ukraine crisis, the two sides will also discuss bilateral cooperation in the economic sphere and global security issues. Russian Deputy Foreign Minister Ryabkov Sergey has expressed hope that the meeting will provide new momentum for normalizing Russia-U.S. relations, including resolving the resumption of direct flights between the two countries. Putin noted on August 14th that he does not rule out reaching a consensus on the New START treaty during the next phase of Russia-U.S. engagement.Arctic Development Cooperation. Several Russian media outlets reported that Putin may promote in-depth Russia-U.S. cooperation projects in the Arctic region during the meeting, aiming to boost economic development in Russia's Arctic and Far East regions and break the deadlock between the two countries under the Arctic Council framework.

New Zealand manufacturing activity rebounds in July

New Zealand's manufacturing activity returned to expansion territory in July, overcoming a weak economic backdrop and growing concerns over U.S. tariffs and their impact on global growth. The BNZ-BusinessNZ Manufacturing Performance Index rose to 52.8 in July, up from 49.2 in June and above the survey's long-term average of 52.5.

Catherine Beard, Director of BusinessNZ, stated that after several challenging months, manufacturing activity rebounded in July, returning to expansion levels seen earlier in 2025. Despite rising unemployment in New Zealand, the manufacturing sector has recovered. However, most economists believe unemployment has peaked. After sharply cutting its benchmark interest rate over the past year, the Reserve Bank of New Zealand (RBNZ) is expected to continue lowering rates in the coming months. Data showed all five key manufacturing sub-indices were in expansion territory in July, led by a surge in the new orders index to its highest level since March 2022. Manufacturing output expanded at its strongest pace since August 2022. However, the employment index barely returned to expansion territory after contracting for two consecutive months. The proportion of negative comments from industry respondents fell to 58.6% in July, down from 65.5% in June and 64.5% in May.

Musalem: Too early to make a call on September rate cut

On Thursday, Federal Reserve Bank of St. Louis President Musalem stated that the slowdown in U.S. economic growth, along with tariffs putting pressure on corporate profit margins, could threaten the labor market. "The data is starting to give us some signs of the possibility of persistent inflation." Weighing these two factors, Musalem said it is too early to determine whether he will support a rate cut at next month's meeting, as current economic conditions do not align with the economic outlook.

Daly: No need for 50 bps rate cut

During European trading hours in New York time, Wall Street Journal reporter Nick Timiraos published an exclusive report in which San Francisco Fed President Mary Daly pushed back against the necessity of a 50-bps rate cut in September.

Daly has dismissed the need for a rapid 50-basis-point interest rate cut at the Fed's September meeting. "I'm worried it would send an urgency signal that I don't feel about the strength of the labor market," she noted. Daly also thought the remedial action was unnecessary.

U.S. July PPI surges

Thursday's data showed U.S. PPI rose 3.3% year-on-year in July (previous: 2.4%) and 0.9% month-on-month (previous: 0%). Compared to the prior reading, this qualifies as a "surge." The July PPI increase adds further complexity to the economic outlook. For consumers, this could mean higher prices for goods and services in the coming months, as producers will eventually pass on increased costs, impacting household budgets.

While the CPI primarily reflects consumer-side price pressures, the PPI captures producer-side pressures, the source of price increases. This data has created significant uncertainty for the Fed's rate-cutting plans. Following the PPI release, market expectations for a September rate cut dropped to around 85% (from 100% previously), and the previously rumored "50 basis point cut" now seems unlikely. For the remaining three Fed meetings this year, the market has priced in a total of 56 basis points in cuts (two cuts, no longer three), down from 63 basis points earlier.

[Today's Focus]

UTC+8 20:30 U.S. July Retail Sales

UTC+8 21:15 U.S. July Industrial Production MoM

UTC+8 22:00 U.S. August University of Michigan Consumer Sentiment Index (Flash)

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Gerik

Economic

Stocks

Earnings Rebound, Public Investment, and Surging Liquidity

According to Maybank Investment Bank Vietnam (MSVN)'s August 2025 strategy report, Vietnam’s stock market is entering one of its strongest growth phases in history. Market-wide earnings grew 34% in the first half of the year, fueled by broad recovery across both domestic and export-focused sectors. Liquidity surged to a record VND 32.8 trillion per session in July an unprecedented milestone.

The most prominent driver is the surge in public infrastructure investment. This has directly boosted sectors such as real estate (up 64% in profit) and steel (up 26%). These figures reflect a strong market response to the government’s proactive fiscal policies and its ambitious 8% GDP growth target for 2025.

Banking Sector Remains a Pillar Despite Margin Pressure

Vietnam’s banking sector saw credit growth of 10% YTD (19% YoY), though net interest margins (NIMs) were squeezed due to increasing competition for deposits. As a result, profit growth for the sector slowed to 16%. Nevertheless, banks remain central to the market’s momentum, especially as valuations remain reasonable and lending demand continues to rise.

Despite a slowdown in global demand and tariff-related disruptions, the technology export sector still posted 21% profit growth. However, long-term prospects remain positive due to ongoing digital transformation and enterprise IT investments.

Notably, aviation logistics stood out with an explosive 152% profit increase, driven by the sharp recovery of international tourism marking it as one of the strongest growth stories of 2025 so far.

Market Reclassification Remains a Psychological and Capital Catalyst

Another major bullish factor is the expectation of a market status upgrade. This narrative has significantly boosted investor confidence and attracted foreign capital inflows. MSVN believes this "reclassification story" will continue to drive momentum through August and September, though they caution against potential “sell-the-news” events once an upgrade is confirmed.

Consumer spending is expected to recover more slowly than corporate and government investment. However, it will still benefit from improving sentiment, potential personal income tax reforms, and rising household wealth due to asset price appreciation in real estate and equities.

With earnings growth projected at 18.5% for 2025 and valuations near the 5-year average, MSVN believes the VN-Index can reach 1,800 by year-end. The rally is likely to be led by three major sector themes:

Infrastructure Plays – Real estate and steel will benefit from government-backed infrastructure mega-projects.

Banking – Strong credit expansion, reasonable valuations, and economic recovery will keep banks at the forefront.

Technology and Aviation – Supported by digitalization trends and sustained tourism growth, both are poised for continued structural expansion.

With resilient fundamentals, high liquidity, and a favorable macroeconomic backdrop, Vietnam's stock market is well-positioned to deliver broad-based and quality-driven growth in the remaining months of 2025.

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Gerik

Economic

Manufacturing and Exports Wobble Despite Trade Pause

Despite a reported 7.2% year-on-year surge in exports for July, China’s broader industrial performance deteriorated. The headline export number largely reflected a low base effect and a temporary front-loading of shipments during the 90-day tariff truce extended by the Trump administration. With the future of the U.S.-China trade agreement uncertain, Chinese manufacturers have restrained hiring and investment, and begun shifting their trade focus to Southeast Asia and Africa in anticipation of longer-term U.S. market loss.

As a result, industrial output growth slowed sharply to 5.7% in July from 6.8% in June. Fixed-asset investment growth halved to just 1.6% in the first seven months of 2025, compared to 2.8% in the first half underscoring manufacturers’ growing caution amid tariff and demand uncertainties.

Property Sector Collapse Undermines Broader Economic Confidence

China’s long-troubled property sector continues to be a major drag on the economy. Property investment contracted 12% year-on-year in the January-July period, with residential investment plunging nearly 11%. Housing prices in major cities fell 1.1% marking a prolonged price correction that began during the COVID-19 pandemic.

With millions of jobs tied to real estate and most household wealth invested in property, the ongoing meltdown has deeply eroded consumer confidence. Efforts by the government to stabilize housing construction and offer market incentives have yet to translate into meaningful recovery in sales or buyer sentiment.

Retail Sales and Labor Market Reflect Dampened Consumer Mood

The knock-on effects of the real estate slowdown are evident in consumption data. Retail sales rose just 3.7% in July, the weakest pace in seven months and a sharp drop from June’s 4.8% growth. Families remain cautious amid declining home equity, rising living costs, and a clouded employment outlook.

The national urban unemployment rate rose to 5.2% from 5.0%, reflecting a wave of new university graduates entering the labor market. Structural mismatches in labor demand particularly in construction and real estate are likely to keep pressure on the job market in the months ahead.

Deflationary Pressures Suggest Weak Domestic Demand

Price data also signals weakening domestic demand. While consumer prices rose 0.4% month-on-month in July, producer prices fell 3.6% year-on-year, deepening concerns about deflation at the wholesale level. This divergence reflects slowing demand across the supply chain and thinning profit margins for producers, especially in export-linked sectors.

The July data highlights the fragility of China’s post-pandemic recovery. Even with a temporary pause in U.S. tariffs, underlying structural issues especially the property sector crisis are dragging on growth. The combination of faltering investment, cautious consumers, rising joblessness, and deflation risks suggests that the Chinese economy is navigating a difficult transition with few short-term policy levers that can deliver broad-based recovery. Without deeper reforms or a sustained external demand boost, economic momentum may continue to deteriorate through the remainder of 2025.