Macro data from China are being watched with great investors attention because they may affect market fears of recession. The upward economic momentum from the beginning of the year has clearly weakened (as priced into the poorly performing Chinese indices), and investors are beginning to see the country as unstable again – including geopolitically. Tensions between Beijing and the U.S. still persist. Taiwan issue remains unresolved and elections on the island looming this fall so perception of risky investing climate in China may be there for longer.
Inflation readings from China, for May:
CPI inflation: 0.2% vs. 0.2% forecast and 0.1% previously (in line with expectations)
PPI inflation: -4.6% vs -4.3% forecast and 3.6% previously (surprise)
- Low CPI inflation and surprisingly lower-than-forecast producer inflation, combined with increasingly weak macro data, are raising hopes around potential broader stimulation of the economy by the People’s Bank of China.
- China’s disinflationary trend also continues at a time of ‘global disinflation’ – when demand in developed economies falls under pressure from central bank actions.
- China’s National Bureau of Statistics attributed the country’s overall economic weakness to the trend in global commodity markets and, of course, lower demand.
- The data showed that the commodity and mining industries weighed on the producer price index (PPI), with food, tobacco and alcohol prices mainly responsible for the 0.2% CPI reading.
PBOC Governor Yi Gang indicated that the Bank of China will maintain monetary policy. He did not suggest any big changes – despite signals justifying stimulation of the economy. Yi assured that 5% GDP growth will be achieved this year, and expects inflation to gradually pick up in the second half of the year. Pinpoint Asset Management indicated that China’s economy faces a significant risk of deflation. A reassessment of the PBOC’s monetary policy could potentially come after the release of Q2 GDP data in July.
Both China’s core and CPI inflation are at historically low levels. Source: XTB Research
China’s disinflation – PPI has fallen from a record 13.5% in 2022 to -4.6% today. The decline could be positive were it not for the fact that its sharpness is indirectly due to a weaker economy. Source: XTB Research
HKComp Index, M30 interval. The index maintains short-term upward momentum and is still trading above the SMA100 (black line). In the case of declines, potential support may be provided by the level of 19,100 points, set by the 23.6 Fibo retracement of the upward wave from the end of May and previous price reactions. The main psychological resistance is located at the level of 20,000 points. Source: xStation5