China CPI remains below target – IP, retail sales to come

The first batch of today’s Chinese data held no surprises for the market. CPI came in as expected at +3.4 percent y/y, slightly lower than March’s 3.6 percent. This is the third month in a row it has held below the government’s annual target of 4 percent but food prices continue to rise with food inflation rising 7.0 percent y/y and 0.9 percent m/m. There may be encouraging news from the PPI data which showed a 0.7 percent annual decline, faster than the 0.5 percent forecast and accelerating from the -0.3 percent posted in March.

Timing rescheduling of releases means that the rest of the Chinese data is released just as Europe opens. Industrial production is expected to rise 12.2 percent y/y (though yesterday’s weak imports data may suggest the downside to this estimate is vulnerable) while retail sales are expected to slow marginally to +15.1 percent y/y from +15.2 percent. Fixed asset investment growth is expected to remain steady at +20.5 percent y/y.

In response to the data, currencies held a tight range in Asia with a slight risk-off sentiment apparent throughout. EURUSD had another push through recent lows on stop-loss selling but stalled ahead of 1.29. AUDUSD likewise drifted towards parity but looked comfortable.

In the European and US sessions we had a brief respite from Greek influence as the Bank of England left rates unchanged and, with no adjustments to QE measures, the pound was able to stage a mild rally. US data was mixed with import prices tamer than expected (-0.5 percent m/m, +0.5 percent y/y) while the trade deficit widened to $51.8 bln from $45.4 bln as imports jumped 5.2 percent, the biggest increase in more than a year, on higher demand for oil and consumer goods from China, and more than swamped the better export performance. Weekly jobless claims declined to the lowest levels in a month, falling by 1,000 from the previous month to 367,000. While the May jobs report is still a way off, there are increased expectations that it will be a better number than April.

Data Highlights

• CA Mar. Trade Balance out at +CS0.35 bln vs. +C$0.5 bln expected and revised +C$0.27 bln prior
• US Apr. Import Price Index out at -0.5% m/m, +0.5% y/y vs. -0.2%/+0.8% expected and revised 1.5%/3.6% prior resp.
• US Mar. Trade Balance out at -$51.8 bln vs. -$50.0 bln expected and revised -$45.4 bln prior
• US Initial Jobless Claims out at 367k vs. 368k expected and revised 368k prior
• US Continuing Claims out at 3229k vs. 3275k expected and revised 3290k prior
• US Bloomberg Consumer Comfort Index out at -40.4 vs. -37.6 prior
• UK Apr. NIESR GDP Estimate out at +0.1% q/q vs. revised -0.2% prior
• US Apr. Monthly Budget out at $59.1 bln vs. $35.0 bln expected and -$40.4 bln prior
• NZ Apr. Food Prices out at -0.1% m/m vs. -1.0% prior
• UK Apr. Nationwide Consumer Confidence out at 44 vs. 53 prior
• China Apr. CPI out at +3.4% y/y, as expected vs. 3.6% prior
• China Apr. PPI out at -0.7% y/y vs. -0.5% expected and -0.3% prior

Upcoming Economic Calendar Highlights

(All Times GMT)

• China Industrial Production (0530)
• China Retail Sales (0530)
• China Fixed Asset Investment (0530)
• GE CPI (0600)
• UK PPI Input/Output (0830)
• CA Employment Change/Unemployment Rate (1230)
• US PPI (1230)
• US Fed’s Fisher to speak (1315)
• US Michigan Confidence (1355)

For more information on today’s events, please visit the financial calendar