TD Sees The Door Ajar For Monetary Easing

T.D Securities weighs in on the China outlook post yesterday's inflation data:

"We expect inflation in China to continue to remain benign in the months ahead especially as consumer momentum likely fades. PPI was even more subdued, with ongoing deflation revealed in April; PPI fell 3.6% y/y (TD -3.1% y/y, cons. -3.3%, last -2.5%), with a high base in April contributing to the decline and lower commodity input prices weighing heavily.

China continues to show no sign of exporting inflationary pressures globally nor is China's rebound providing a reflationary impulse outside of the country given weak trade. Low inflation keeps the door open to monetary easing and there have been reports of upcoming deposit rate cuts by Chinese banks. As for LPR cuts, we think the PBoC will wait until later in the year as growth momentum slows, before cutting further. Chinese bonds will likely extend gains in the wake of this data, while on the margin this is negative for CNY/CNH."