Founder of Antler Capital

Stanley Tsai, CFA

Macroeconomics

The divergence between China's May PPI and CPI was materially wider than expected. At 7.7%, the gap has reached a new high. Cost pressures on mid/downstream producers are mounting, although in our view, a good portion of that risk has been priced into equity valuations. Consumer prices will likely remain benign for the rest of the year, owing to subdued food prices and Beijing's tight grip on the supply chain (Exhibit 1).
The sharp bounce in PPI is reminiscent of what we saw in 2010 and 2017. But the external environment is vastly different from both monetary and geopolitical perspectives. In any case, we believe we are close to the peak in the cycle, if we are not already there.
Headline CPI was benign, putting concerns over tightening to rest for the time being. To be clear, inflation will gradually trickle down to the consumer, but the pace appears to be steady. At the current rate, we see CPI ending the year at the 2% level. We believe this scenario is supportive of a rotation into consumer cyclicals.
Overall, the new trade and inflation data reinforce our view that monetary policy will stay the course in 2H21. But we will probably see moderately tighter lending conditions through the summer and autumn. Slower credit growth may also weigh on construction activity, curbing further commodity rallies. 
With consumer prices in check, policymakers will remain focused on frothy property values. The key policy risk continues to shift to the long end of the lending curve, with marginal upward strain on the five-year loan prime rate on which mortgage pricing is based.
<table class="table table-striped">
<tbody>
<tr>
<td style="width: 100%;">Exhibit 1: China | CPI &amp; PPI % Change y/y</td>
</tr>
<tr>
<td style="width: 100%;">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/212/158/original/image_705612152181623231380328.png?1623231381" class="editor-image img-responsive" data-smartkarma-image-id="212158"></figure>
Source: National Bureau of Statistics
</td>
</tr>
</tbody>
</table>

The divergence between China's May PPI and CPI was materially wider than expected. At 7.7%, the gap has reached a new high. Cost pressures on mid/downstream producers are mounting, although in our view, a good portion of that risk has been priced into equity valuations. Consumer prices will likely remain benign for the rest of the year, owing to subdued food prices and Beijing's tight grip on the supply chain (Exhibit 1).
The sharp bounce in PPI is reminiscent of what we saw in 2010 and 2017. But the external environment is vastly different from both monetary and geopolitical perspectives. In any case, we believe we are close to the peak in the cycle, if we are not already there.
Headline CPI was benign, putting concerns over tightening to rest for the time being. To be clear, inflation will gradually trickle down to the consumer, but the pace appears to be steady. At the current rate, we see CPI ending the year at the 2% level. We believe this scenario is supportive of a rotation into consumer cyclicals.
Overall, the new trade and inflation data reinforce our view that monetary policy will stay the course in 2H21. But we will probably see moderately tighter lending conditions through the summer and autumn. Slower credit growth may also weigh on construction activity, curbing further commodity rallies. 
With consumer prices in check, policymakers will remain focused on frothy property values. The key policy risk continues to shift to the long end of the lending curve, with marginal upward strain on the five-year loan prime rate on which mortgage pricing is based.



Exhibit 1: China | CPI &amp; PPI % Change y/y




Source: National Bureau of Statistics





China Macro: PPI Peaks, While CPI Eases Tightening Fears

May export data were considerably weaker than expected, but in our view, it's still much too early to call an inflection point.
Exports surprised on the downside. In dollar terms, exports were up 27.9% y/y, shy of the 30+% level the market expected.  The weakness came primarily from textile, home electronics and medical equipment. Even if we exclude the impact of higher demand for pandemic-related goods in May 2020, the numbers still look weak across the board, with momentum retreating amongst China's major trading partners.
On the other hand, imports remained robust. Imports were up 51.1% y/y, ahead of expectations. Inflation, transitory or not, continued to drive import prices higher. Unsurprisingly, fuels, metals and soy were the key components of the story here.
China's trade surplus rose to USD45.5bn, an increase of 5.2% y/y or 6.3% m/m, after adjusting for the 2020 anomalies. Meanwhile, the country's FX reserve reached a recent high of USD3.22tn, up 3.9% y/y or 0.7% m/m, thanks to the weak USD. We see USD/CNY testing the 6.3 level in the coming months.
Looking ahead, we see reasons to remain optimistic about export growth in the next few quarters, but the mix will likely change. Despite the worrying situations in India, Singapore and Taiwan, retail activity has picked up noticeably in many parts of the world. Google Mobility provides a useful alternative dataset to gauge the reopening progress. In our opinion, these figures point to continued support for mid/downstream sectors (Exhibit 1).
<table class="table table-striped">
<tbody>
<tr>
<td style="width: 726.047px;">Exhibit 1: % Change in Visits to Retail &amp; Recreational Spots | Trends</td>
</tr>
<tr>
<td style="width: 726.047px;">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/211/860/original/image_26179632271623124889068.png?1623124890" class="editor-image img-responsive" data-smartkarma-image-id="211860"></figure>
Source: Google; Our analysis
</td>
</tr>
</tbody>
</table>

May export data were considerably weaker than expected, but in our view, it's still much too early to call an inflection point.
Exports surprised on the downside. In dollar terms, exports were up 27.9% y/y, shy of the 30+% level the market expected.  The weakness came primarily from textile, home electronics and medical equipment. Even if we exclude the impact of higher demand for pandemic-related goods in May 2020, the numbers still look weak across the board, with momentum retreating amongst China's major trading partners.
On the other hand, imports remained robust. Imports were up 51.1% y/y, ahead of expectations. Inflation, transitory or not, continued to drive import prices higher. Unsurprisingly, fuels, metals and soy were the key components of the story here.
China's trade surplus rose to USD45.5bn, an increase of 5.2% y/y or 6.3% m/m, after adjusting for the 2020 anomalies. Meanwhile, the country's FX reserve reached a recent high of USD3.22tn, up 3.9% y/y or 0.7% m/m, thanks to the weak USD. We see USD/CNY testing the 6.3 level in the coming months.
Looking ahead, we see reasons to remain optimistic about export growth in the next few quarters, but the mix will likely change. Despite the worrying situations in India, Singapore and Taiwan, retail activity has picked up noticeably in many parts of the world. Google Mobility provides a useful alternative dataset to gauge the reopening progress. In our opinion, these figures point to continued support for mid/downstream sectors (Exhibit 1).



Exhibit 1: % Change in Visits to Retail &amp; Recreational Spots | Trends




Source: Google; Our analysis





China Macro: Exports Disappoint, but It's Still Early in the Game

Asia L/S Equity PM/Macro/Thematic Idea Generation

Rikki Malik

Cross Asset Strategy

<ul>
<li>Property restrictions removed in major cities, continuing the gradual process from the last 6-8 months</li>
<li>A BIG signal to the market and the public with the relaxation of curbs in Beijing </li>
<li>China's factory output continues expansion and travel data positive for consumption</li>
</ul>


Property restrictions removed in major cities, continuing the gradual process from the last 6-8 months
A BIG signal to the market and the public with the relaxation of curbs in Beijing 
China's factory output continues expansion and travel data positive for consumption


China Ups the Ante with Relaxation of Property Curbs

Head of Research and Global Chief Strategist, Steno Research

Andreas Steno

Head of Research and Global Chief Strategist

Macro and Geopolitical Research House

Steno Research

Steno Research is a new macro and geopolitical research house. We are based out of Copenhagen, Denmark, but have an international team and a strong network of sources and partners around the world. The team is lead by Andreas Steno, previous global head of strategy at Nordea Bank, and Mikkel Rosenvold, former chief consultant in the Danish Ministry of Finance.

<ul><li>Hi everyone, and welcome back to our weekly positioning / sentiment overview, which will be delivered to you right as firefighters have hopefully put out the fire at the old exchange building in Copenhagen..</li><li>Markets have started the week off where they left last week, with the USD wrecking ball continuing to prevail, posing headwinds for equity and fixed income markets as Fed pricing has more or less turned upside down lately.</li><li>We generally positioned for this repricing of USD fixed income, but were caught wrongfooted in a few trades along the way admittedly.</li></ul>

Hi everyone, and welcome back to our weekly positioning / sentiment overview, which will be delivered to you right as firefighters have hopefully put out the fire at the old exchange building in Copenhagen..Markets have started the week off where they left last week, with the USD wrecking ball continuing to prevail, posing headwinds for equity and fixed income markets as Fed pricing has more or less turned upside down lately.We generally positioned for this repricing of USD fixed income, but were caught wrongfooted in a few trades along the way admittedly.

Positioning Watch – Volatility Is Back, but Markets Still Lean into USD Duration.. God Knows Why..

Articles from Caixin Global, Caixin Global

Caixin Global

Articles from Caixin Global

Caixin is a media group dedicated to providing financial and business news through periodicals, online content, mobile apps, conferences, books and TV/video programs. Caixin aims to blaze a trail that helps traditional media prosper in the new media age through integrated multimedia platforms.

News from Caixin

<ul><li>China’s private fund sector was put through the ringer in 2023, with a shaky economic recovery and relentless stock market volatility testing portfolio managers’ resolve.</li><li>During the third straight year of rout in the Chinese stock market, private bond funds’ returns outperformed their stock-focused peers.</li><li>Another bright spot was quantitative investment funds.</li></ul>

China’s private fund sector was put through the ringer in 2023, with a shaky economic recovery and relentless stock market volatility testing portfolio managers’ resolve.During the third straight year of rout in the Chinese stock market, private bond funds’ returns outperformed their stock-focused peers.Another bright spot was quantitative investment funds.

China’s Private Quant, Bond Funds Outperform Peers as Stock Market Falters 

China

Shenzhen Composite Index is an actual market-cap weighted index (no free float factor) that tracks the stock performance of all the A-share and B-share lists on Shenzhen Stock Exchange. The index was developed on April 3, 1991 with a base price of 100. 

Shenzhen Stock Exchange Composite Index (SZCOMP INDEX)

Shenzhen Stock Exchange Composite Index (SZCOMP INDEX)

China Macro: PPI Peaks, While CPI Eases Tightening Fears

In our view, China's PPI has likely peaked, while CPI will remain benign. The current trajectory suggests limited room for monetary maneuvers. And...

Stanley Tsai, CFA

China Macro: Exports Disappoint, but It's Still Early in the Game

May export data were considerably weaker than expected, but in our view, it's still much too early to call an inflection point.

Stanley Tsai, CFA

China Ups the Ante with Relaxation of Property Curbs

The relaxation of property curbs in Beijing is a massive positive signal to the market and is not to be underestimated. Other data from China...

Rikki Malik

Positioning Watch – Volatility Is Back, but Markets Still Lean into USD Duration.. God Knows Why..

Hi everyone, and welcome back to our weekly positioning / sentiment overview, which will be delivered to you right as firefighters have hopefully...

Steno Research

China’s Private Quant, Bond Funds Outperform Peers as Stock Market Falters

China’s private fund sector was put through the ringer in 2023, with a shaky economic recovery and relentless stock market volatility testing...

Caixin Global