uploaded image
Image courtesy of Getty Images

China Stocks Surge, But CPI Data to Show the Economy Remains Weak

By:Ilya Spivak

China propping up its stock market, but inflation data due this week is set to show the underlying economy remains anemic

  • Chinese stocks are surging as Beijing scrambles to prop up prices with official buying.
  • Deflation in China is expected to deepen in January, pointing to anemic demand.
  • Soft CPI inflation data may revive global recession fears across financial markets.

China’s stock market has come back to life in explosive fashion. The catch-all CSI 300 index containing the leading names listed on China’s key exchanges in Shanghai and Shenzhen is on pace to rise over 5% this week, marking the biggest rally in 16 months. The popular iShares China Large-Cap ETF (FXI) has jumped to a five-week high.

Trading activity on China’s exchanges is swelling in tandem. The Financial Times estimates daily turnover jumped to a five-month high this week. This follows a flurry of activity suggesting the authorities in Beijing are stepping up efforts to arrest what has been a dramatic slide in local markets. The CSI 300 shed nearly 30% last year.

Central Huijin, the investment unit of China Investment Corp, the country’s sovereign wealth fund, said it plans to expand purchases of locally listed exchange-traded funds (ETFs). Then, official media outlets reported China Securities Regulatory Commission chair Yi Huiman was removed from his post, as if to signal regime change.

China’s stock market vs. economy: contrasts galore

The key question now is whether such firefighting will amount to anything more than stock market cosmetics, while the underlying economy continues to suffer. Data due this week is set to show demand remains woefully anemic. The consumer price index (CPI) is expected to show deflation deepened in January, printing -0.5% year-on-year.

China - CPI by Item (YoY)

China boosters have argued that such outcomes are less ominous than they appear, owing mainly to falling food and energy prices on global markets. Indeed, core prices excluding the two categories rose 0.6% year-on-year for a third consecutive month in December. This measure hasn’t seen a negative reading in over two years.

China and global recession risk: reasons to worry

While food and energy are certainly large components of China’s CPI basket and price declines there are undoubtedly a global phenomenon, the economy-wide story is worrying all the same. Real gross domestic product (GDP) growth has outpaced the nominal side for three quarters straight, implying an eye-watering deflationary gap of about 1.5%.

Chinese economic data outcomes have deteriorated relative to forecasts in the past three months, suggesting analysts’ models are overestimating the battered economy’s attempt at recovery. This warns that surprise risk is tilted on the downside. A disappointment may revive concerns about global recession, weighing on stock markets.

China Nominal vs. Real GDP (YoY)

Ilya Spivak, tastylive head of global macro, has 15 years of experience in trading strategy, and he specializes in identifying thematic moves in currencies, commodities, interest rates and equities. He hosts Macro Money and co-hosts Overtime, Monday-Thursday. @Ilyaspivak

For live daily programming, market news and commentary, visit tastylive or the YouTube channels tastylive (for options traders), and tastyliveTrending for stocks, futures, forex & macro.

Trade with a better broker, open a tastytrade account today. tastylive, Inc. and tastytrade, Inc. are separate but affiliated companies.

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Related Posts

tastylive content is created, produced, and provided solely by tastylive, Inc. (“tastylive”) and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, digital asset, other product, transaction, or investment strategy is suitable for any person. Trading securities, futures products, and digital assets involve risk and may result in a loss greater than the original amount invested. tastylive, through its content, financial programming or otherwise, does not provide investment or financial advice or make investment recommendations. Investment information provided may not be appropriate for all investors and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. tastylive is not in the business of transacting securities trades, nor does it direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives. Supporting documentation for any claims (including claims made on behalf of options programs), comparisons, statistics, or other technical data, if applicable, will be supplied upon request. tastylive is not a licensed financial adviser, registered investment adviser, or a registered broker-dealer.  Options, futures, and futures options are not suitable for all investors.  Prior to trading securities, options, futures, or futures options, please read the applicable risk disclosures, including, but not limited to, the Characteristics and Risks of Standardized Options Disclosure and the Futures and Exchange-Traded Options Risk Disclosure found on tastytrade.com/disclosures.

tastytrade, Inc. ("tastytrade”) is a registered broker-dealer and member of FINRA, NFA, and SIPC. tastytrade was previously known as tastyworks, Inc. (“tastyworks”). tastytrade offers self-directed brokerage accounts to its customers. tastytrade does not give financial or trading advice, nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of tastytrade’s systems, services or products. tastytrade is a wholly-owned subsidiary of tastylive, Inc.

tastytrade has entered into a Marketing Agreement with tastylive (“Marketing Agent”) whereby tastytrade pays compensation to Marketing Agent to recommend tastytrade’s brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of Marketing Agent by tastytrade. tastytrade and Marketing Agent are separate entities with their own products and services. tastylive is the parent company of tastytrade.

tastycrypto is provided solely by tasty Software Solutions, LLC. tasty Software Solutions, LLC is a separate but affiliate company of tastylive, Inc. Neither tastylive nor any of its affiliates are responsible for the products or services provided by tasty Software Solutions, LLC. Cryptocurrency trading is not suitable for all investors due to the number of risks involved. The value of any cryptocurrency, including digital assets pegged to fiat currency, commodities, or any other asset, may go to zero.

© copyright 2013 - 2024 tastylive, Inc. All Rights Reserved.  Applicable portions of the Terms of Use on tastylive.com apply.  Reproduction, adaptation, distribution, public display, exhibition for profit, or storage in any electronic storage media in whole or in part is prohibited under penalty of law, provided that you may download tastylive’s podcasts as necessary to view for personal use. tastylive was previously known as tastytrade, Inc. tastylive is a trademark/servicemark owned by tastylive, Inc.