March inflation reports for the world’s two biggest economies come to the fore today and tomorrow as the tensions from March’s brush with a major banking crisis continue to ease.
Later today China’s March Consumer Price Index (CPI) and Producer Price Index (PPI) data will be released. Tomorrow sees the release of US CPI figures and the PPI a day after. They will be a study in contrasts.
The US data will show an easing but at a still too high a pace (see separate story), the Chinese data will be lower than the US but show a sluggish pace of price and economic growth.
After March’s monthly inflation data China’s trade figures on Thursday will be further analysed for any confirmation that the re-opening is responding to rising demand for exports offshore, and imports within the huge Chinese domestic economy.
The China re-opening story as a driver of western markets, especially commodities, has faded as the March quarter ended as it became clear that while activity has rebounded, consumer spending especially remained hesitant.
Economists forecast a rise in month-on-month inflation from February’s surprise fall which would take the annual rate to 2% from 1% the previous month. The Producer Price Index is forecast to again be negative with an annual reading of minus 1%, slightly stronger than the 1.4% contraction in February.
For the idea of a strengthening Chinese economy to take hold, inflation will have to start accelerating otherwise it will look like consumers are reluctant to spend which is not what the government led by President Xi Jinping wants us to believe.
China’s trade figures have not lived up to the bullishness of the economic re-opening. Exports and imports fell for the combined January-February period. That weakened both across the final quarter of last year.
China’s start of the month surveys of manufacturing and services were again solid – especially services which shows another month of rising activity levels in March.
And while there are more reports that activity in the stricken property sector is rising, it’s from a very low base and the sector is a long way from redemption.
For Australians, iron ore prices are a yardstick and they have seen a slide in the year so far to April. Australian analysts will be watching for the March and March quarter figures on Chinese iron ore imports – and imports of LNG and coal as well.
The SGX iron ore price for 62% Fe fines ended at $US117.51 a tonne before Easter, and only $US4 a tonne above the end of 2022 level. That compares to the multi-month high of just over $US131 a tonne in mid-March.
Up until now, the feeling has been that economic recovery is taking longer than expected, prompting analysts at Citigroup to push back their forecasts for a stock market rebound by three months.
Instead of June, Citi now expects it will now take until the end of September for the Hong Kong’s Hang Seng to reach 24,000, Citi’s analysts said in a report Thursday. That’s about 18% above current levels.
The Hang Seng Index closed at 20,331.20 on Thursday, up about 2.8% for the year so far. That’s well under the late January peak of 22,680.90.
“We expect [first-quarter 2023 corporate] results to be on the weaker side as post COVID recovery seems slower than expected,” the Citi report said. It said analysis of 2022 results of 316 Chinese companies found more misses than beats.
The analysts also delayed by three months — to the end of September — their expectations for a rebound in two other Chinese stock indexes.
For the CSI 300 (which combined the top 150 stocks from the Shanghai and Shenzhen exchanges), Citi has a target of 4,500, or about 9% above Friday’s level of near 4,125.
For the MSCI China index, Citi has a forecast of 78. That’s about 18% above current levels near 66.
Copper is supposed to be some sort of indicator of Chinese economic performance and lately it has not been going anywhere. It ended at $US4.01 a pound on Comex in New York before Easter and drifted a little high in Asian dealings on Monday.
Year to date copper is still up by between 5% to 6% but in the past 12 months its off close to 15% which is probably a measure of the faded strength of Chinese demand in that period.
