Chinese Inflation “Officially” Slows to 5.5%

Wednesday, November 9th, 2011

China’s inflation figure is being closely watched, because aside from government and central bank intervention in the West, the really big driver during the crisis was a massive spending spree by China – around 20% of GDP!  [Feb 16 2009: Is China Pulling an Alan Greenspan?] While cheered at the time in most quarters some (hand raised) said there would be ill effects.  [May 27, 2009: How is China Spending their Stimulus... and How Many Loans Will go Bad?]….  True to form, it led to many bad loans as so much money was shot out in every direction  [Mar 29, 2011: [Video] An in depth Look at China’s Empty Cities] [Jan 14, 2011: [Video] Behold China’s Nearly Empty Mega Mall] [Nov 13, 2009: Ordos - China's Empty City]   …. China is currently dealing with that fallout. [Jun 2, 2011: China Now Beginning to Feel Hangover from Lending Boom - Government May Assume Some Local Debt]

That said, the world’s speculators are praying for a new round of China stimulus even as the country grapples with the mess their last “Greenspan policy” left behind.  However, China has had an inflation problem – and in a country where food inflation can lead to social strife, that’s no small matter.  So today’s news that ‘official’ inflation is falling, will make those who demand government’s step in at every corner, happy as it may point to an end of central bank tightening.

As always with the China inflation figure – take it with many grains of salt… hence my quotation marks around “official” inflation.  [Sep 13, 2010: BW - What's China's Real Inflation Rate? (What's China's Real Anything?)] [Nov 12, 2010: Even China Accuses China of Fibbing About Inflation]

Via Reuters:

• Chinese industrial output grew at its weakest annual pace in a year in October and inflation fell sharply, raising expectations Beijing will do more to support economic growth by “fine tuning” policy.
• A flurry of data on Wednesday showed that China’s factories are bearing the brunt of a modest economic slowdown even as consumer spending and investment in assets such as roads and other infrastructure remain resilient.
• China’s annual inflation rate fell to 5.5 percent in October from September’s 6.1 percent — the biggest drop in the annual rate from one month to the next since February 2009 — and a further pullback from July’s three-year peak of 6.5 percent.
• The 5.5 percent rise in the consumer price index in the year to September was in line with expectations from a Reuters poll.
• Producer price inflation also showed a marked slowdown to 5.0 percent in October, a one-year low, from 6.5 percent in September. The median of a Reuters poll had forecast an October reading of 5.7 percent.
• “All of this suggests that the balance of risk for the PBOC and State Council is likely shifting to growth and away from inflation,” Tim Condon, head of Asian economic research at ING in Singapore, said.
• China’s leaders have begun talking in recent weeks about “fine tuning” macroeconomic policy to maintain economic growth, which slowed in the third quarter to 9.1 percent, its weakest in more than two years.
• Premier Wen suggested prices had continued to fall.  ”Since October, overall domestic prices have been falling noticeably,” Wen was quoted as saying by a government website. “Prices of pork and eggs have fallen, but prices of fruit, dairy products, beef and mutton remain at high levels.”
• But Zhou Wangjun, a senior official at the National Development and Reform Commission, saw inflation staying high and said it was too early for Beijing to relax policy.  ”We will still maintain the prudent monetary policy and control the amount of money in circulation,” Zhou said, adding that the government will boost supplies of farm products to help put a lid on price rises.
• Wen and other policymakers have made it clear that stabilizing prices and fighting inflation are the top priority, so analysts rule out an early rate cut or reduction in bank reserve ratios.
• Evidence that food inflation is easing also supports the case for further fine-tuning measures from the government.  Food prices, a major source of inflationary pressure in China, rose 11.9 percent in October from a year earlier, the smallest annual increase since May. But they fell 0.2 percent from September, the first decline since May.
• Even after the big fall in October, inflation remains well above the government’s 2011 target of 4 percent.
• While most analysts rule out an immediate cut in interest rates, there is more debate on when the central bank might reduce bank reserve ratios. At 21.5 percent, the RRR is at a record level for big banks.

Meanwhile industrial production has slowed some as well:

• Industrial output rose in October by 13.2 percent from a year earlier, slightly below expectations for a 13.4 percent rise and the weakest pace since October 2010.  Exports were a net drag on China’s economic growth in the first nine months of this year as the sector felt the chill of a weak global market.

Tags: Alan Greenspan, Central Bank Intervention, Economic Growth, Empty Cities, Factories, Fallout, Grains, Hangover, Ill Effects, Inflation Figure, Inflation Problem, Inflation Rate, Infrastructure, Left Behind, Mega Mall, Quotation Marks, Reuters, Social Strife, Speculators, Spending Spree, Stimulus
Posted in Infrastructure, Markets | Comments Off

Baltic Dry Index: A Valuable Leading Indicator?

Friday, December 5th, 2008

The Baltic Dry Index is a very important indicator of the health of trade globally, as it measures shipping activity in dry cargo.

Take a look at the chart below: According to the BDI, one of the purest economic indicators, the activity of shipping dry bulk cargo, mainly consisting of commodities such as coal, steel, iron ore, and cement, has almost completely ground to a halt, as indicated by the crash in the index’s value.

The BDI offers a real time glimpse at global raw material and infrastructure demand. Unlike stock and commodities markets, the Baltic Dry Index is totally devoid of speculative players. The trading is limited only to the member companies, and the only relevant parties securing contracts are those who have actual cargo to move and those who have the ships to move it. ^[1]

Another interesting feature of the BDI, is its high correlation to equity markets. Take a look at BDI vs. S&P500 and FXI (China 25 Index iShare), Crude Oil and Copper:

Baltic Dry Index vs. S&P 500

Baltic Dry Index vs. FXI (FTSE Xinhua 25 Index iShare)

Baltic Dry Index vs. Crude Oil

Baltic Dry Index vs. Copper

We’ll keep an eye on credit markets, and the Baltic Dry Index as indicators of the vitality (or lack thereof) of the economy and markets and keep you posted.

As goes the BDI (a leading indicator), so goes the economy, and perhaps equity markets (and commodities, we might add).

At the time of the publishing of this article, the BDI stands at 663 pts.

Tags: Array, Baltic Dry, Baltic Dry Index, Bdi, Blog, Br, Bulk Cargo, Cargoes, Cement, Chart, China, Coal, Commodities, Commodities Prices, Copper, Correlation, Crash, Credit, Credit Market, Credit Markets, Crude Oil, Debacle, Dow, Dry Cargo, Eco, Economic Indicators, Economy, Equity Market, Failure, FTSE, Ftse Index, Ftse Xinhua, FTSE Xinhua 25, Fxi China, Glimpse, Grains, Health, Img, Infrastructure, Investment, Iron Ore, Ishare, Issuance, Leading Indicator, Lehman Brothers, Loc, Markets, Measures, Member Companies, oil, P500, pence, Php, Precipitate, Raw Material, real time glimpse, Relevant Parties, S&P 500, S&P500, Shipping Activity, steel, Time Glimpse, Trading, Value, Vitality
Posted in Commodities, Credit Markets, Economy, Energy & Natural Resources, Infrastructure, Markets, Oil and Gas | Comments Off

China Oversold?

Wednesday, April 2nd, 2008

Apr. 2, 2008 – Courtesy: Bespoke Investment Group – The Baltic Dry Index measures changes in the cost to transport raw materials such as metals, grains and fossil fuels by sea. Many look to the Baltic Dry Index as a leading indicator, and in recent years, its move has been fairly correlated with China’s economy and the Shanghai Composite.

As shown in the chart below, China’s equity market and the Baltic Dry Index had huge rallies from the end of 2005 to the end of 2007. They also had huge declines after they peaked late last year. Since late January, however, the Baltic Dry Index has been climbing while China’s Shanghai Composite has been falling. This divergence suggests that China’s equity markets might be getting a little overdone on the downside at least in the short term.

Tags: Baltic Dry, Baltic Dry Index, Bespoke Investment Group, Chart, China, China Economy, China Market, China S Economy, Declines, Divergence, Downside, Economy, Equity Market, Fossil Fuels, Grain, Grains, Index Measures, Investment, Investment Group, Leading Indicator, Markets, Metals, Rallies, Raw Materials, Shanghai Composite, SSE 50
Posted in Economy, Markets | Comments Off