Decelerating Inflation Playing in Favor of PBoC And China Officials

• PPI Inflation decelerated more than expected (again) in January and came in at 9.1% YoY (vs. 9.5% exp.), down from 10.3% the previous month and down from a 26-year high of 13.5% reached in October 2021.
• CPI inflation, which has been less of a driver of China LT bond yields (relative to PPI) in the past cycle, also surprised ‘negatively’, decelerating to 0.9% in January (vs. 1% exp.).
• As mentioned in our China inflation preview, the sharp contraction in Chinese 'liquidity' (TSF 12M Sum) in 2021 has been pricing in a significant deceleration in inflation in the coming 9 to 12 months.
• A faster deceleration in PPI inflation leaves more room for policy easing, which could continue to support domestic risky assets in the medium term.
• Hang Seng Index went up during Tuesday overnight session after finding support below its 100DMA on Monday; the index is now up nearly 9% from its low reached in early January.
• ST key resistance to watch on the topside stands at 24,976.10, which corresponds to the 61.8% Fibo retracement of the 21,139.25 – 31,183.35 range.
• A break above that level would open the door for a move up to 25,907.50 (200DMA).
• On the downside, key support to watch stands at 23,509.70 (76.4% Fibo).

Source: Bloomberg/MNI