[ANALYSIS] CHINA DATA RECAP: Consumer prices join PPI in deflation territory; analysts now eye next week's activity data and PBoC MLF update

Analysis details (07:42)

CHINESE INFLATION (Released Wednesday):

• China consumer prices fell at a rate of -0.3% Y/Y in July (exp. -0.4%, prev. 0.0%), slipping into deflation for the first time since February 2021. CPI came in at +0.2% M/M (exp. -0.1%, prev. -0.2%), largely led by a 26% Y/Y decline in pork prices in July. Core CPI rose +0.8% Y/Y (prev. 0.4%), while PPI printed -4.4% Y/Y (exp. -4.1%, prev. -5.4%).


• The data underscores weak domestic demand with the expected post-COVID rebound in consumer spending failing to materialise. analysts have suggested that the data further fuels calls for more government support measures, particularly given the weaker trade data earlier this week, and further tensions within the property sector. Some have touted possible rate and RRR cuts later this year.


• MUFG said that “consumer inflation in year-on-year terms was affected by the pandemic last year and the rebound in consumer spending and pent-up demand after the lockdown”, while expecting further monetary policy easing. Pinpoint Asset Management sees the argument for more fiscal stimulus to be rolled out. ANZ’s Senior China Strategist suggests “The only bright spot was that the core CPI rebounded to 0.8% due to seasonal tourism during the summer,” but that may lack sustainability, adding that "It would be hard to manoeuvre monetary policy. The Politburo meeting called for a stable yuan exchange rate, which would conflict with monetary easing."

CHINESE TRADE DATA (Released Tuesday):

• China’s trade surplus widened to USD 80.6bln in July (exp. 70.6bln, prev. 70.6bln), with imports dropping to a rate of -12.4% Y/Y (exp. -5.0%, prev. -6.8%), reflecting weaker domestic demand, while exports fell by the largest margin since the pandemic’s start, falling further to -14.5% Y/Y (exp. -12.5%, prev. -12.4%); the decline was due to lower prices rather than lower quantities.


• CapEco says exports could decline more before stabilising toward the end of the year, while imports might improve due to increased infrastructure spending and recovering international travel. Pantheon posits “China’s exports will probably continue falling in H2, as the U.S. is likely to enter a mild recession, while the Eurozone economy is set to remain weak.”

CHINESE ACTIVITY DATA:

• Next Tuesday will see the release of China's Industrial Production and Retail sales data.


• June’s Industrial Production data surprised to the upside at 4.4% Y/Y (vs exp. 2.7%) while Retail Sales printed at 3.1% (exp. 3.2%), cooling from 12.7% in May.


• Desks will be eyeing the data for more signs of foreign and domestic demand.

AUGUST RATE ANNOUNCEMENTS:

• 15th– One-year medium-term lending facility (MLF)


• 21st – One-year and Five-year Loan Prime Rates (LPRs)

09 Aug 2023 - 07:42- Fixed IncomeData- Source: Newsquawk