CNY: INFLATION FELL BACK TO ZERO, WEAK TRADE PERSISTS – COMMERZBANK

Analysts at Commerzbank offer a brief analysis of Chinese macro data released earlier this Friday, showing that consumer prices rose 0.2% MoM in September and were flat on an annual basis. China also published trade balance data, which pointed to lacklustre global demand for Chinese goods and muted domestic demand.

Key Quotes:

“The September inflation report released today showed that CPI inflation fell back to 0% yoy. Back in July, it temporarily dropped below zero to -0.3% yoy. However, we would argue that China is not yet on the verge of deflation. First of all, core inflation remained unchanged at 0.8% yoy. Second, on a month-on-month basis, headline CPI inflation was positive each month in the past three months, albeit only at 0.2% on average according to the official statistics. Deflation becomes entrenched and problematic when consumers expect the general price level to fall continuously. So far, this is not yet the case in China.”

“Nevertheless, subdued price pressures reflect weak domestic demand. While the absence of inflation provides room for the PBoC to do more monetary stimulus, the central bank may refrain from doing so if the economy shows further signs of bottoming out. The GDP and activity data that will be released next week will provide further clues about China’s growth performance in September and Q3.”

“Meanwhile, the trade data today showed that the decline in exports in USD terms eased to -6.2% yoy from -8.8% in August. Imports in USD terms also dropped 6.2% yoy from -7.3% previously. Adjusted for prices, imports in real terms probably grew by around 4% yoy. Real import growth was supported by imports of energy and raw materials for stocking up inventories. However, imports of intermediate and capital goods remained soft amid weak growth momentum in China.”

“The yuan has remained stable this week after China took an eight-day holiday for the National Day Golden Week last week. USD-CNY has been hovering around 7.30 for the week. CNY will likely remain under pressure before economic data show that China’s growth momentum turns around and picks up speed, albeit likely just modestly so. Meanwhile, to counter yuan’s weakness, the PBoC has continued to set USD-CNY daily fixings that were much lower than what would be implied by the fixing formula.”