Chinese consumption deflating?

It seems worries over an imminent rate hike by the Fed has caught up with Asian markets after they shrugged off these concerns yesterday.

Source: Bloomberg

The poor performance of European and US markets overnight provided a negative impetus ahead of the Asian open. The strong performance of Japanese and Mainland Chinese equity markets had marked both of them for a correction today in the wake of US and European performance.

The disappointing Chinese CPI numbers have only added to the ongoing concerns over the Chinese economy, adding to negative China sentiment this week after the trade data on the weekend also came in below expectations. The CPI and PPI data release at 12.30 AEDT seemed to move the Hong Kong-based Hang Seng and Hang Seng China Enterprise Indices down the most in the region.

The Chinese CPI came in noticeably below expectations for 1.5% year-on-year at 1.3%, but most notable was the 0.3% decline seen month-on-month. Much of the hope for China’s economic transition rests on continuing strong consumption and services sector growth. Given this, it was most concerning to see the drop in CPI most attributable to a drop in consumer goods and food inflation. Although the lesser weighted component for recreation, education and cultural services also saw a noticeable weakening. Of most concern for the Peoples’ Bank of China (PBoC) is the weakness seen across all the CPI indicators, with Core CPI and Non-Food both losing 0.1% to ease to 1.5% and 0.9%, respectively.

The weekend Chinese trade data, particularly the very low import numbers, highlight the ongoing weakness in the Chinese economy. In the wake of today’s CPI and PPI data, it is clear that there are currently low risks for an inflation overshoot if the Chinese central bank does choose to ease monetary policy. Questions will now turn to whether we will see a move on this front before the year is out.


The Australian data released today was relatively upbeat, supporting the Reserve Bank of Australia’s (RBA) decision to hold off on rate cuts at their November meeting last week. The ANZ Roy Morgan weekly consumer confidence reached its highest level since January 2014, continuing its noticeable rise since Malcolm Turnbull became Prime Minister. Although it is uncertain whether this would continue to hold if talk about raising the GST continues to increase.

The NAB Business Confidence did come off in October, but the NAB Business Conditions index continued to hold at relatively high levels.

Home loan growth for September came in much stronger than expected at 2% month-on-month, but this was partly due to the downward revisions seen in the previous months. Owner occupied home loan approvals continued to see strong growth at 3% month-on-month, managing to balance out the marked drop off seen in investor approvals, which fell 8.5% month-on-month.

However, the ongoing weakness seen in weekly auction clearance data does seemingly point to an imminent slowing of loan growth in the coming months.


The upbeat consumer confidence numbers did not seem to spill over to the ASX today. The ASX opened at its lowest levels seen since 5 October, but continued to sell off further throughout today. Negative overnight market leads did not provide a strong set up for the ASX.

The awful performance of the ASX over the past two weeks has been driven by the banks. Their heavy 30% weighting on the ASX has meant it is very hard for the index as a whole to end up on the day with the Big Four trading in negative territory. The banks have collectively fallen 1.5% today.

Whether the ASX declines below the key 5000 level this week will largely be decided by the performance of the banks. If there is not turnaround in banking stocks, the ASX is likely to continue to head towards its late-September low of 4918.

The fall in the oil price overnight saw further weakness in the energy sector as it fell 1.1%. The fact that Santos has been forced to raise $3.5 billion through a range of different avenues has only added further concerns around the sector. Although refinery utilisation rates are picking up as we come out of the September-October maintenance season, Saudi Arabia continues its aggressive pursuit of market share. There is still a lot of oil production to come out of the market yet before we begin to see much of a rebalancing and a corresponding sustained uptick in prices.

The A-REITs continued to see heavy selling today despite the better-than-expected home loans data. The sector lost 2% today as concerns about the Aussie housing market continue to grow after the auction clearance rates over the weekend fell to 65.7%, its lowest level since February this year.

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