Daiwa: China Economy Macro preview – November CPI and other data

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


China Economy
Macro preview – November CPI and other data



Summary
• CPI should be the main focus again. We forecast a slight rise for November to
4.5% YoY, and expect a 25bp interest-rate hike in December. Meanwhile, newloan growth is likely to have topped Rmb550bn again for November.



Fundamentals
• CPI. The Bloomberg consensus is for an acceleration in CPI for November,
with the median forecast at 4.7% YoY compared with the 4.4% YoY recorded
for October. However, we forecast a smaller increase – by 0.1% to 4.5% YoY –
mainly because food-price inflation moderated significantly in November after
the government took decisive and appropriate measures to increase food supply
and reduce food-transportation costs. As real interest rates remain negative and
inflation expectations are generally strong, we see a strong need for the
People’s Bank of China to raise interest rates and/or the reserve requirement
ratio again as soon as possible. We forecast a 25bp rise in the interest rate in
December.
• PPI. Producer price inflation (PPI) is likely to rise further, driven by a rise in
import prices. The PMI’s input-price index rose by 3.6 points to 73.5 for
November, suggesting a strong month-on-month increase for the PPI. We
forecast PPI for the month to rise by 5.1% YoY.  
• Industrial production (IP). The strong PMI output reading for November (it
rose by 1.4 points to 58.5) suggests IP strengthened on a month-on-month basis.
As local governments have been asked to relax the constraints on energy and
factory usage, we believe it may have helped IP to recover. However, given the
high base for November 2009 (when IP  rose by 19.2% YoY), we forecast
headline year-on-year IP growth to be just 13.2% for November.
• New loans and M2.  New loans in September and October overshot on the
upside, at Rmb1,183bn, suggesting that the authorities may have relaxed control
over loan quotas and allowed new loans to increase above the original quotas, in
order to clear the infrastructure projects still outstanding from the stimulus plan.
We forecast new loans of Rmb550bn for November and total new loans for
2010 to be close to Rmb8tn.