ChartBrief 102 – China Inflation Surprises, Commodities, And EM

The latest inflation figures out of China weren’t much to talk about on the face of it, with CPI at 1.5% yoy in June and PPI at 5.5% – both unchanged from June and more or less in line with expectations.  But what is notable, besides the persistent underlying inflation pressures we’re seeing, is the way producer prices have been rocked around by commodities.  The following two charts help put it in context.  The first shows how the surge in China’s inflation surprise index had a big helping hand from commodities (although I would also note that most had been too negative on China last year – at a time when we were optimistic on the cyclical outlook due to stimulus and property).

Get The Full Ray Dalio Series in PDF

Get the entire 10-part series on Ray Dalio in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues

 

The second shows the apparent link between China PPI and emerging market equities.  There is a fairly logical link there because there is a significant portion of EM economies that are commodity-sensitive.  The other point is China is a big consumer and driver of commodity prices, so rising commodity prices often reflect generally better cyclical conditions in China - which get reflected in Chinese equities and Chinese demand for other inputs and finished products. The main point is that when PPI is in deflation it tends to be negative EM and vice versa.  Just one factor, but one that captures a lot of important drivers.

Voss Capital is betting on a housing market boom

Housing MarketThe Voss Value Fund was up 4.09% net for the second quarter, while the Voss Value Offshore Fund was up 3.93%. The Russell 2000 returned 25.42%, the Russell 2000 Value returned 18.24%, and the S&P 500 gained 20.54%. In July, the funds did much better with a return of 15.25% for the Voss Value Fund Read More


China's inflation surprise index surged on the back of rebounding commodity prices and overly pessimistic sentiment on the outlook for China's economy.

European Inflation Is Rising, But Get Out Of Treasury Shorts Says Macro Voices

Chinese PPI inflation (or deflation) provides an important signal when thinking about emerging market equities. It captures a couple of key drivers, and the main rule of thumb is that positive PPI inflation is generally supportive for emerging markets.

China Inflation

For institutional grade insights on the global economics and asset allocation, and some more good charts you may want to subscribe to the Weekly Macro Themes.  Click through for a free trial.

Follow us on:

LinkedIn https://www.linkedin.com/company/topdown-charts

Twitter http://www.twitter.com/topdowncharts

Article by Callum Thomas, Top Down Charts

Save

Previous articleFAANG =/ Dot Com
Next articleEvolve Or Go Extinct – Is Your Portfolio Built To Survive In Any Market?
Topdown Charts: "chart driven macro insights" Based in Queenstown, New Zealand, Topdown Charts brings you independent research and analysis on global macro themes and trends. Topdown Charts covers multiple economies, markets, and asset classes with a distinct chart-driven focus. We are not bound by technical or fundamental dogma, and instead look to leverage any relevant factor to capture the theme. As such, here you will find some posts that are purely technical strategy, some that just cover economics and data, and some posts that use multiple inputs to tell the story and identify the opportunities. Callum Thomas Head of Research Callum is the founder of Topdown Charts. He previously worked in investment strategy and asset allocation at AMP Capital in the Multi-Asset division. Callum has a passion for global macro investing and has developed strong research and analytical expertise across economies and asset classes. Callum's approach is to utilise a blend of factors to inform the macro view.