Chinese inflation data improves as stimulus takes hold

Wednesday, December 09, 2015

Some slightly better data coming out of China overnight as we start to see the emerging impact of stimulus measures. Inflation data released during the Asian session came in above expectations with CPI accelerating 1.5% y/y in November against an expected 1.4% y/y increase while PPI held steady from the previous month at -5.9% y/y against expectations that factory gate prices would slip by -6.0% y/y in November. The increase in consumer prices was spurred by higher food costs and suggests that demand may slowly be improving and while producer prices continue to slow the consensus view seems to be one of quiet optimism as the domestic demand outlook slowly improves.

The yuan failed to halt its recent bearish run against the USD as investors focused on weaker factory gate prices and continued to digest yesterday’s weaker than expected trade data. Onshore yuan weakened for a fourth straight session against the dollar, trading towards 6.4280 at the time of writing as the slump in the commodity market continued to act as a drag on emerging markets. The currency has lost 3.6% against the dollar with the offshore yuan exchange rate losing 4.5% throughout the year and while the depreciation against the greenback perhaps isn’t as pronounced as other emerging market currencies, the Chinese economy will likely face further headwinds from a weaker commodity market and outflows as monetary tightening in the US prompts investors to rebalance their portfolios.

Both front month Brent and WTI futures seem to have stemmed the recent outflows as they find support around yesterday’s opening levels. Both benchmarks have come under renewed pressure since the start of the month as investors reacted adversely to OPECs no cap announcement. Front month Brent futures are currently trading around $40/bbl while WTI futures have found some stability around $38/bbl. Today sees the release of EIA US crude oil inventories and after last week’s surprise build in stockpiles it seems investors are expecting additional increases this week, albeit a modest 730K barrels and if the consensus estimates are accurate we’ll have seen crude stockpiles increase for eleven straight weeks.     

Chinese inflation data starting to pick up

CNCPIYOY Index China CPI Yoy 2015 12 09 08 25 06

US crude oil inventories have risen for 10 straight weeks

DOEASCRD Index DOE Total Change 2015 12 09 08 44 39

Events for today

0130

CN

Nov

CPI

0130

CN

Nov

PPI

0700

DE

Oct

Trade Balance

1500

US

Oct

Wholesale Inventories

1530

US

w/e

EIA Crude Oil Stocks

2350

JP

Nov

PPI

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