China A50 Breaks Lower as Producer Prices Hit 26-Year High
Matt Simpson November 10, 2021 2:17 PM
Company profits are set to be squeezed further as China’s producer prices rose to a near 3-decade high of 13.5%. The China A50 index was quick to break lower.
Producer prices rose to their highest level since 1996 last month, although consumer inflation is yet to close the gap form runaway factory prices. And this is despite Beijing’s best attempts a curb record high coal prices. To put that into perspective, it was when England last hosted the European Cup and made it to the semi-finals.
The power crunch has forced Beijing to implement output curbs which is exacerbating higher prices, as a time they are trying to keep a lid on runaway prices. Policy-wise, China find themselves in a tricky spot because higher prices limit the amount of easing they may want to implement, despite some form of easing being required to increase domestic demand. According to a Reuters poll, economic growth for China is expected to slow down to 5.2% y/y in Q3, down from 7.9% in Q2 and this will likely be revised lower after today’s figures.
Consumer prices are also starting to turn higher with CPI rising to a 1-year high of 1.5% y/y, and up 0.7% m/m. It’s hardly near the double-digits like producer prices, but it serves as a reminder that inflation is returning and now beginning to hit consumers, ahead of today’s highly anticipated inflation report form the US tonight.
In other yet related news, President Xi and President Biden are to meet next week at their virtual summit. Let’s both presidents are fully alert (or awake, Joe…) for the duration of the occasion
Asian equites were broadly lower across Asian following today’s report. The China A50 is around -1.7% and one of the worst performers of the session. We can see that the resistance zone around 15,700 continues to cap gains and momentum has now turned lower. A bearish engulfing candle formed yesterday, and today’s action has seen prices break trend support.
- From here we suspect it will try to head for 15,000
- Although we’d expect the 14,847 – 15,000 zone to provide support, initially at least.
- There’s also potential for this to run down to the September lows whilst prices remain beneath the broken trendline.
This content will only appear on City Index websites!
How to trade with City Index
You can trade easily trade with City Index by using these four easy steps:
Open an account, or log in if you’re already a customer
• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
- Search for the company you want to trade in our award-winning platform
- Choose your position and size, and your stop and limit levels
- Place the trade
From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.
As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.