China: CPI inflation to ease, export growth to moderate – Nomura

Aurodeep Nandi, Research Analyst at Nordea Markets, expects China’s export growth to moderate, but remain relatively solid at 13.0% y-o-y in October after higher-than-expected growth in September, as front-loading activity should extend into the rest of this year.

Key Quotes

“Import growth is likely to slow more visibly, as importers may postpone some of their import orders from October to November to benefit from import tariff cuts (the most-favoured nation import tariff rate cuts announced by the State Council on 30 September came into effect on 1 November).”

“CPI inflation is likely to ease in October, as high-frequency data suggest negative month-on-month food price inflation, while non-food price inflation may have moderated seasonally. PPI inflation may drop further in October because of sequentially lower month-on-month inflation of industrial product prices and a high base last year.”

“We expect M2 growth to rebound, and the seasonal slowdown of new RMB loans and aggregate financing to be shallower, mainly benefiting from the 100bp reserve requirement ratio (RRR) cut that came into effect on 15 October, with a net liquidity injection of RMB750bn.”

“Our FX strategists believe China’s headline FX reserves would fall by USD47bn to USD3.040trn in October. After adjusting for FX and coupon effects, we estimate the adjusted change to fall by USD28.2bn, from a fall of USD24.2bn in September.”