Yuan Strength Continues; Inflation Eyed

Offshore yuan finished Monday slightly weaker, but USD/CNH briefly touched 6.4040, just shy of the lowest level since 2018. Onshore yuan, CNY, touched 6.4114 which denotes the highest since 2018. This is despite a nudge from the central bank at the fix; the PBOC fixed USD/CNY 55 pips above sell side estimates yesterday, the whole of April saw cumulative misses of -9 pips, the biggest individual miss was +19 pips.

• Markets await inflation data from China today due at 0230BST/0930HKT. Momentum in producer prices is expected to continue as commodity prices continue to rise, though the outlook for consumer prices is more mixed. CPI is expected at 1.0% Y/Y while PPI is expected at 6.5%.
• Goldman Sachs are slightly more pessimistic: "We expect CPI inflation to increase to 0.9% yoy in April, up from 0.4% yoy in March. Nonfood CPI inflation likely increased in April as consumption and services activities continued to recover. PMI surveys also pointed to higher inflation pressures in recent months. Food inflation moderated in April, however, as pork, vegetables and fruit prices fell in the month. We expect PPI inflation to rise further in April on the back of higher metal prices to 6.9% yoy in April from 4.4% yoy in March."
• Morgan Stanley forecast below consensus: "CPI YoY likely edged up to 0.6% in April (vs. 0.4% in March). The key driver was likely a modest increase in core CPI (0.6% in Apr vs. 0.3% in Mar) on continued service consumption recovery, outweighing weaker food prices (particularly pork) amid supply increase. Meanwhile, PPI YoY likely rose to 7% in April (vs. 4.4% in March) due to a low base last year, although softer readings in both input and output price sub-indices of manufacturing PMI suggest that PPI MoM likely softened marginally to 1.2% (vs. 1.6% in March)."