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Strong Focus On Aggregate Financing and October Inflation This Week

  • This week, investors will strongly focus on China Aggregate Financing update and October PPI inflation.
  • Since the start of the year, we have seen that the sharp deceleration in the Chinese economic activity combined with the drastic fall in 'liquidity', which we define as the annual change in the Total Social Financing 12M sum, have impacted both domestic and international asset prices.
  • This chart shows the strong co-movement between China liquidity and tech equities (CQQQ); periods of falling liquidity have been usually associated with a correction in tech equities.
  • Tech equities (CQQQ) are down nearly 40% since their peak reached in February 2021, which corresponds to the peak in Chinese economic activity.
  • Inflation is expected to continue to accelerate in October, with sell-side firms forecasting PPI to surge in 12.3% (which would be its highest level since October 1995).
  • On one hand, the acceleration in inflation should drive LT bond yields higher; on the other hand, the sharp contraction in liquidity usually tends to lead to a more risk-off environment with lower bond yields.

Source: Bloomberg/MNI

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