Bitcoin held steady at $30,000 on Monday morning as data from China’s Producer Price Index (PPI), which measures the price of goods produced, suggested that the cycle of global liquidity tightening that began early last year has come to an end. This was a factor in the volatility seen among risk assets such as cryptocurrencies.

The National Bureau of Statistics announced that the PPI in China, which is a measure of prices at the factory gate, dropped 5.4% on an annual basis in June. This was the ninth consecutive month of declines and the largest drop in the past seven years.

This will likely lead to deflationary forces on the global economy. China is the biggest trading partner for the major economies of the world. When the inflation rate falls, the price level will continue to decline.

The persistent deflation of one of the largest manufacturers of manufactured goods in the world will help the western central banks, who have been increasing interest rates aggressively to combat inflation, which is at its highest level in years and, in some cases, decades. This has hurt the economy as a whole.

Since March 2022, the Fed has increased rates by over 500 basis points. It also ran into a Banking Crisis at the beginning of this year. In Europe, Credit Suisse was rescued from bankruptcy by Swiss rival UBS.

David Brickell is the director of institutional sales for Paradigm’s crypto liquidity network. He told CoinDesk that “China exports disinflation to the west”. We’re seeing this reflected in the producer prices, but it hasn’t yet fully filtered through to consumer prices. This will ultimately be good for the risk, as it pertains to the end of global inflation cycle.”

The annual rise in U.S. Producer Prices of 1.1% was the lowest in nearly 2 1/2 years. The consumer price index rose by 4% in May, the lowest increase since two years. CNN expects that the CPI will show a further slowdown to 3.1% growth in June.

China PPI: A dull reaction

The PPI data from China has not yet sparked a risk-on rally. Bitcoin is still unsure of its direction above $30,000, and futures linked to the S&P 500 are trading at a 0.5% loss on the day. The dollar index climbed 0.15% higher to 102.42.

Investors seem to be concentrating on the negatives: A continuing decline in the Chinese number points to an economic recovery that has stalled. Analysts widely cited China’s reopening in early this year as a major tailwind to global growth and risky assets.

The weakness of the S&P futures market and Asian stock exchanges after the release of the data can be attributed the strong correlation between global earnings, and Chinese producer prices. Jeroen Blockland, founder of True Insights said that the latest PPI numbers do not bode well with earnings.

Brickell believes that bitcoin’s next leg will begin once bond yields reach their peak.

He said that the knee-jerk response is to focus on negative implications of Chinese growth slowdown. “Risk assets have also adjusted to last week’s brutal bond sell-off. As yields peak, I believe stocks will stabilize. I believe a change in yields will trigger BTC’s next leg up, given the weakness of the dollar.”

Last week, the U.S. Treasury 10-year yield hit a four-month-high of 4.09%. The two-year Treasury yield reached its highest level since 2006 after the soaring U.S. ADP Private Payrolls data on Thursday.

The Friday nonfarm payrolls report indicated that job creation slowed in June. However, the unemployment rate fell along with an unexpected rise in average hourly earnings. This kept yields on their upward path.

Bond yields that are higher tend to decrease the flow of funds into risky assets. If Wednesday’s U.S. CPI shows that inflation is continuing to slow, yields could turn lower.

Sheldon Reback is the editor.