Chinese Price Data Lend Support to Investor Sentiment

October 14, 2016

The perceived strength of the Chinese economy continues to exert enormous influence over market sentiment. Poor trade data on Thursday sent global stocks tumbling, but today’s price reports indicated higher-than-expected inflation and generated a relief rally.

  • Chinese consumer prices advanced 0.7% on month in September and 1.9% on year, the biggest 12-month increase since a similar gain in the year to June.
  • Producer prices in September were 0.1% greater than a year earlier, their first on-year rise since 2012. The PPI had recorded on-year declines of 0.8% in August, 1.7% in July and 5.3% last January.

Share prices in Asia rose 1.1% in Indonesia, 0.7% in Hong Kong, 0.5% in Japan and 0.4% in South Korea and Singapore.  In Europe, equities have so far climbed today by 2.6% in Greece, 1.8% in France, 1.9% in Italy and Spain, 1.6% in Germany, 1.4% in Switzerland and 0.8% in Great Britain.

West Texas Intermediate crude oil is 0.9% higher and, at $50.99 per barrel, headed for a fourth straight weekly gain.

Comex gold has dipped 0.2% to $1,254.60 per troy ounce.

The dollar recovered 0.6% against the yen to trade again above the 104 level but lost 0.7% relative to the Australian dollar. The dollar also rose 0.4% against the euro, 0.3% versus the Swissie and 0.1% relative to sterling but has fallen 0.3% against the loonie and 0.1% versus the kiwi and yuan. The Thai baht and many other emerging market currencies rose overnight.

The 10-year British gilt yield leaped seven basis points to 1.09%, and the 10-year German bund is a basis point higher at 0.05%. Japan’s 10-year JGB is steady.

The Monetary Authority of Singapore, which reviews policy twice per year (in April and October) decided not to change its stance further but signaled no urgency to retighten. Interest rate policy in Singapore is subordinated to an exchange rate target, defined by a permitted trade-weighted corridor with an explicit slope, width and midpoint. In April, the authorities agreed to end the band’s upward slope but made no change to the band width or midpoint. At the prior two reviews in April 2015 and October 2015, the slope had been reduced but left upwardly pointing. Singapore also reported some economic indicators:

  • Real GDP contracted last quarter, trimming on-year growth to 0.6% from 2.0% in the second quarter of 2016.
  • Retail sales fell 1.1% on month and 1.0% on year in August.

Japanese domestic corporate goods prices were unchanged in September, resulting in a smaller 12-month 3.2% rate of decline. In the year to September, export and import prices respectively fell by 1.6% and 7.0%, down from 12-month slides through September 2015 of 6.7% and 21.1%.

Japanese M2 money grew 3.6% in the year to September, up from 3.3% in August, and by 3.4% in the third quarter, which matched on-year expansion in the second quarter.

Japanese stock and bond transactions last week, the first one of the second half of fiscal 2016, generated a 535 billion yen net capital inflow. There had been a JPY 59 billion inflow in the previous week.

Indian WPI inflation slowed to 3.57% in September from 3.74% in August. The last RBI monetary policy meeting was presided over by a new central bank governor and resulted in an interest rate cut.

British construction output underwhelmed investors. Such fell 1.5% in August on top of drops of 0.5% in July, 1.0% in June and 1.6% in May. In June-May, construction fell 1.3% versus the prior three-month period and by 0.5% on year.

Switzerland’s PPI/import price index rose 0.3% on month in September, trimming the 12-month drop to just 0.1%. Domestic producer prices were unchanged from a year earlier, and import prices recorded a 0.4% decline.

Euroland posted a seasonally adjusted EUR 23.3 billion trade surplus in August, a two-month high and up from EUR 20.8 billion in July. Exports increased 2.3%, more than twice the 0.9% rise of imports. The year-to-August unadjusted surplus of EUR 179 billion was 17.6% larger than a year earlier, as import contraction of 3.2% was four times greater than the decline of exports.

Italian consumer prices dipped 0.2% in September and rose 0.1% on year, confirming the preliminary estimate.

South Korea’s index of leading economic indicators rose 0.5% in August, reversing all of the drop posted in July.

U.S. retail sales, producer prices, and the initial U. Michigan October consumer sentiment survey today.

Copyright 2016, Larry Greenberg. All rights reserved. No secondary distribution without express permission.


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