In the past several weeks, there’s been a big thesis-change in China, and new inflation data is helping to tie up some loose ends.
Something we’ve been noting lately is the fact that the Shanghai Composite has quietly been a star performer among world markets.
This rally comes after analysts, starting in mid-March, started to declare victory on Chinese inflation, and thus predicting the end of PBOC’s well-known tightening cycle.
More and more, it looks like this call is vindicated. While official headline inflation stats won’t be out for a while, China does seem to be turning the corner on the all-crucial food inflation.
The wholesale prices of 18 staple vegetables dropped 4.6 per cent on average last week. The decline was 2 percentage points greater than the previous week’s level, said the report.The price of peanut oil was down 0.1 per cent from one week ago, while the prices of soybean and rapeseed oils remained stable.In the week ending April 10, egg prices in China had fallen 0.2 per cent from the previous week, registering a 6.1 per cent decline from two months ago, said the MOC report.
This isn’t the end of the story. There’s obviously wage and land inflation to be concerned about, and meat prices are still on the rise.
Yet the fact that overall that this issue seems to be waning provides a lot of fodder for the China bulls.
Stepping back for a moment it is fairly remarkable that in just the first 3.5 months of the year, it’s been so crystal clear the impact of tightening and inflation concerns on markets. In the beginning of the year, food inflation stories were dominant, central banks were clearly in the throes of aggressive tightening, and emerging markets got whacked. As this story has faded, equity markets have been able to stretch their legs, and catch up with the rest of the (still) loose-money world.