Marketmind: Seeking signs of life in Chinese inflation

By Jamie McGeever

(Reuters) – A look at the day ahead in Asian markets from Jamie McGeever.

Wall Street and world markets cheered below-consensus U.S. inflation on Wednesday, but they may not be so accommodating if Chinese inflation on Thursday also undershoots forecasts.

Easing U.S. price pressures are a sign that inflation is on its way back down towards the Fed’s 2% goal and that the economy may be headed for a soft landing, perhaps allowing the Fed to cut interest rates in the second half of the year.

On the other hand, inflation in China is already extremely low and a sign that the world’s second largest economy is struggling to generate demand, momentum and sufficient growth.

Charlie Bilello, chief market analyst at Creative Planning, on Wednesday tweeted a list of 34 countries’ annual consumer price inflation rates. China’s 0.7%, the lowest since September 2021, was comfortably the weakest of them all, by almost two full percentage points.

Economists polled by Reuters expect that 0.7% rate to fall to 0.4%, which would be the lowest in more than two years.

(Graphic: China CPI inflation –

Producer price inflation figures will also be released on Thursday. The consensus in a Reuters poll is for another slump in the annual rate, to -3.2% in April, the heaviest rate of deflation in almost three years.

The April purchasing managers index reports showed that the input and output price sub-indexes slipped into contraction territory in the month, while April’s trade figures on Wednesday were alarmingly weak too.

The notable slowdown in exports raises questions about the sustainability of China’s export rebound, while the unexpected collapse in imports raises even bigger doubts about domestic demand.

Chinese stocks on Wednesday lost over 1% for the second straight day. Further evidence that the post-lockdown recovery is faltering could make it three in a row on Thursday.

In Japan, meanwhile, the full-year earnings season rolls on with Honda, Nissan (OTC:), Sharp (OTC:) and Softbank (OTC:) Group among the plethora of companies reporting.

Trade and current account figures for March will be released too, potentially giving the yen a nudge. The non-seasonally adjusted current account surplus is expected to rise to just under 3 trillion yen, the widest in more than three years.

G7 finance leaders on Thursday open three days of meetings in Japan. They are likely to discuss growing risk of U.S. debt default, diversifying supply chains away from China, cooperation over emerging nations’ debt woes, and how to work together on tackling high inflation and slowing growth.

Here are three key developments that could provide more direction to markets on Thursday:

– China CPI and PPI inflation (April)

– G7 finance ministers meeting (Japan)

– Japan corporate earnings (Full year)

(By Jamie McGeever)

Source link