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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
CHINA
- We saw earlier (overnight session) that China PPI inflation, which historically has shown a strong relationship with the 10Y yield, rose more than expected in May to 9% (vs. 8.5% exp.), its highest level since September 2008 and just shy of the record print of 10% reached in August 2008.
- As a result, Chinese authority decided to launch price controls on key consumer goods on corn, wheat and pork to stabilize prices.
- CPI inflation rose to 1.3% YoY (less than 1.6% expected), up from 0.9% and is still 'low' relative to its 20Y range.
- However, we previously saw that China 10Y yield has been less sensitive to changes in CPI inflation in the past cycle; the chart below shows that the co-movement between China 10Y yield and CPI inflation broke down in 2013.
Source: Bloomberg/MNI
- On the other hand, China 10Y yield has continued to co-move strongly with PPI inflation, and the recent surge in PPI is pricing in significantly higher long-term rates in China (chart below).
- China 10Y was barely unchanged after the May print and is currently struggling to break through its 50D SMA at 3.15%.
- Can the fall in real money supply combining with tightening conditions generate a rise in risk-aversion in markets in the coming months?
Source: Bloomberg/MNI
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
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