# Marketmind: China disinflation a mix of good and bad Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2023-07-10 Category: NEWS Category URL: https://financedigest.com/category/news Meta Title: Marketmind: China disinflation - good and bad Meta Description: Dive into the impact of China's disinflation on global markets. Explore the implications of the latest data on consumer and producer prices. URL: https://financedigest.com/marketmind-china-disinflation-a-mix-of-good-and-badhtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/2023-07-10t052945z2lynxmpej69031rtroptp4china-economy-inflation-1736813778156-compressed.jpg) # Marketmind: China disinflation a mix of good and bad (Reuters) – A look at the day ahead in European and global markets from Wayne Cole China’s inflation data for June surprised on the downside, with consumer prices slipping 0.2% on the month to leave annual CPI dead flat. Producer prices fell 5.4% on the year, the sharpest decline since late 2015. On the face of it, this implies there is plenty of [scope to ease monetary and fiscal policy](https://www.financedigest.com/uks-ftse-100-dips-on-scope-of-tighter-monetary-policy-informa-jumps.html "UK’s FTSE 100 dips on scope of tighter monetary policy; Informa jumps") further. Yet it also underlines the scale of the [challenge that Beijing faces](https://www.financedigest.com/s-koreas-yoon-faces-early-challenge-amid-hints-of-n-korea-nuclear-test.html "S.Korea’s Yoon faces early challenge amid hints of N.Korea nuclear test") in avoiding an outright deflationary spiral. Japan’s experience shows what deflation combined with a [shrinking population can mean for an economy](https://www.financedigest.com/uk-economy-on-brink-of-recession-as-it-shrinks-in-august.html "UK economy on brink of recession as it shrinks in August"). The soft data saw the yuan lose early gains but Chinese [blue chips](https://www.financedigest.com/siemens-energy-to-rejoin-germanys-blue-chip-dax-hellofresh-to-exit.html "Siemens Energy to rejoin Germany’s blue-chip DAX, HelloFresh to exit") are still up, in part thanks to hopes that Beijing is relaxing its regulatory grip on the tech sector. Globally, a deflationary pulse from [China could over time help to offset service-driven inflation](https://www.financedigest.com/world-stocks-upbeat-on-hopes-for-china-re-opening-inflation-peaking.html "World stocks upbeat on hopes for China re-opening, inflation peaking") in developed nations. Disinflation in goods is a major reason [analysts expect](https://www.financedigest.com/naturgys-profit-rises-on-lng-gains-soothing-shareholders-by-pietro-lombardi-madrid-reuters-spanish-power-utility-naturgy-reported-on-monday-an-88-jump-in-profit-for-the-first-six-months-of.html "Naturgy’s profit rises on LNG gains, soothing shareholders By Pietro Lombardi MADRID (Reuters) – Spanish power utility Naturgy reported on Monday an 88% jump in profit for the first six months of the year, boosted by strong earnings at its liquefied natural gas (LNG) business, which could help it to win over restive investors. Earlier this month, the company said it would increase its dividend floor through 2025 while trimming expected investment, as it sought to make rewarding shareholders a priority. Pleasing them has become a focus as Naturgy considers changes that could reshape the company and after arguments over the potential appointment of a chief executive. Naturgy’s first-half net profit jumped to 1.05 billion euros (.16 billion), boosted by its liquefied natural gas (LNG) business. Shares were down 0.2% in mid-morning trading, bucking deeper declines, in particular for Spain’s blue-chip banks and utilities after a general election on Sunday produced no clear winner. Renta 4 Banco analyst Angel Perez Llamazares said Naturgy performed better than expected, adding “cash flows also beat our expectation,” and debt fell more than expected. After natural gas prices hit record levels last year, Naturgy said a fall in procurement costs this year and hedging gains had boosed profits. In the first half of the year, the company “exceeded the objectives of operating efficiency, cash generation, investment materialisation and debt reduction,” Executive Chairman and CEO Francisco Reynes said. After rival Iberdrola named a separate CEO last year, Naturgy is the only large energy company in Spain to combine the roles of executive chairman and CEO. Earlier this month, the company raised the dividend floor to 1.40 euros a share, from 1.20 euros. Operating profit (earnings before interest, tax, depreciation and amortisation) is expected to reach 5.1 billion euros, compared with a previous guidance of 4.8 billion euros. It said it was targeting net profit of 1.8 billion euros in 2025. Naturgy also relaunched its plan to split regulated infrastructure operations and liberalised energy businesses into two listed companies. The project had been suspended after the Ukraine war disrupted energy markets and analysts are still sceptical. “We believe it is unlikely that Naturgy will be able to implement its asset split in the short term and it is also unlikely that a big change in the shareholding of the company would occur,” said RBC analyst Fernando Garcia. ( = 0.8986 euros) (Reporting by Pietro Lombardi, editing by Inti Landauro and Barbara Lewis)") coming U.S. CPI data to show a slowdown in June. Headline U.S. inflation is forecast at 3.1%, a remarkable turnaround from 9.1% a [year earlier](https://www.financedigest.com/uk-car-output-jumps-27-in-may-from-year-earlier-on-steady-ev-demand.html "UK car output jumps 27% in May from year earlier on steady EV demand") even if core measures are proving stickier. That would be welcome news for the Treasury [market after its recent](https://www.financedigest.com/homewares-market-recent-industry-developments-and-growth-strategies-adopted-by-players.html "Homewares Market: Recent Industry Developments and Growth Strategies Adopted by Players") drubbing. Some funds were clearly long of bonds in anticipation of an “end of the tightening cycle” rally that never materialised, and got badly squeezed when the [market moved](https://www.financedigest.com/these-days-tik-tokers-can-move-markets-more-than-investment-analysts.html "These days Tik-Tokers can move markets more than investment analysts…") against them. The fact that U.S. 10-year yields are still [testing 4.09% despite the downside miss on headline payrolls](https://www.financedigest.com/dollar-struggles-before-payrolls-test-aussie-rebounds.html "Dollar struggles before payrolls test; Aussie rebounds") suggests the market is still long and there’s further pain ahead. One side effect of the [surge in bond yields](https://www.financedigest.com/analysis-banks-lag-bond-yield-surge-as-recession-worries-trump-cheap-valuations.html "Analysis-Banks lag bond yield surge as recession worries trump cheap valuations") has been a shake-out of carry trades in the forex market. Every investor and their mum has borrowed cheaply in yen to invest in high yielders, with the Mexican peso likely the most crowded of all the trades. Rising yields in the developed [world make emerging markets](https://www.financedigest.com/world-shares-rally-as-china-offers-markets-a-hand.html "World shares rally as China offers markets a hand") look relatively less attractive and can pressure those positions. It was notable late last [week that Mexican bonds](https://www.financedigest.com/shares-and-bonds-nervy-as-rate-hike-week-looms.html "Shares and bonds nervy as rate-hike week looms") suddenly sold off and the peso slid 2.6% on the yen over two sessions – although that follows months of gains. Such trades are usually done by [selling](https://www.financedigest.com/chinas-state-banks-seen-selling-dollars-offshore-to-slow-yuan-drop-sources.html "China’s state banks seen selling dollars offshore to slow yuan drop – sources") yen for dollars and dollars for pesos, or whatever the target currency is, so when the positions are reversed it leads to selling of dollars for yen. This was likely a major reason the [dollar dropped](https://www.financedigest.com/stocks-advance-u-s-dollar-retreats-as-china-drops-quarantine-rule.html "Stocks advance, U.S. dollar retreats as China drops quarantine rule") 1.3% on the yen on Friday, and why any major unwinding of carry trades would drag the dollar down even if its own fundamentals seemed sound. Still, a sustained unwinding seems unlikely unless and until the Bank of Japan finally gives up on its [yield curve](https://www.financedigest.com/german-bond-yield-curve-most-inverted-in-nearly-31-years.html "German bond yield curve most inverted in nearly 31 years") control (YCC) policy. The BOJ’s next meeting is on July 28 and many [western banks](https://www.financedigest.com/russia-bans-western-investors-from-selling-banking-key-energy-stakes.html "Russia bans Western investors from selling banking, key energy stakes") are tipping some form of tightening, although the BoJ itself has shown scant sign of gratifying them. Were it to happen, it would be a seismic event for markets. [Key developments that could influence markets](https://www.financedigest.com/automotive-mems-sensor-market-key-manufacturers-development-trends-and-competitive-analysis-2028.html "Automotive MEMS Sensor Market Key Manufacturers, Development Trends and Competitive Analysis 2028") on Monday: – Bank of England Governor Andrew Bailey and [Finance Minister Jeremy Hunt speak at the annual Mansion House](https://www.financedigest.com/what-green-criteria-sustainable-finance-houses-look-for-when-conducting-due-diligence-and-how-businesses-seeking-to-attract-investment-can-get-their-house-in-order.html "What green criteria sustainable finance houses look for when conducting due diligence, and how businesses seeking to attract investment can get their house in order") dinner – Fed speakers at Monday events include San Francisco President Mary Daly, Cleveland President Loretta Mester and Atlanta President Raphael Bostic (By Wayne Cole; Editing by Edmund Klamann) --- This blog is powered by Superblog. 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