There continues to be no inflation in China. At a headline level, that will change when food prices rebound. But the decline in inflation isn't just seen in headline. The run-rate of core has slowed from 1.8% annualised before covid to 0.6% since.
As a general trend, both exports and imports remain range-bound. That's interesting, because exports haven't fallen so far from the peak, and imports look much stronger than the collapse in property. Exports have probably bottomed, but there's likely downside risk for imports.
We think the main themes for China remain weak aggregate demand and pricing, and strong external surpluses. That indicates lower rates and a stronger CNY. To think that is too pessimistic, we look for signs of better property activity and a reversal of the flow of savings into time deposits.
The PMIs weakened again in November, with both manufacturing and services now below 50. Price measures were also weak. Recent fiscal support should remove some of the immediate downside risk, but there's nothing yet to suggest a real rebound in the cycle, equities, or rates.
Property price deflation worsened in October. The failure of real estate to find a floor means the macroeconomy will likely remain weak into 2024. With overall inflation also soft, we still expect policy rate cuts.
October activity don't change the story from the last few months: activity is weak, but not terrible; the lack of any rebound in property mean it is difficult to build a scenario of a strong macro rebound in 2024; and the underlying condition of the economy continues to be clouded by data issues.
On a MoM basis, narrow money has now been contracting for 11 of the last 15 months, a trend that's resisted both the ending of zero covid and the efforts to revive property. Without M1 picking up, we'd expect activity to remain sluggish, inflation to stay weak and interest rates to fall.
On a YoY basis, both CPI and PPI were in deflation in October. The weakness in CPI wasn't just about food prices, with core also falling MoM. As a result, nominal growth in China remains weak, and we'd expect interest rates are more likely to fall than rise.
Exports are going sideways. Imports have risen since July, and while buying of components for export processing is up a touch, the bigger driver seems to be imports of commodities. That has reduced the overall trade surplus, but the surplus in manufactures goods remains large.