Early Morning Call: China consumer inflation falls as demand softens

Indices overview

Hong Kong’s Hang Seng led gains for a second straight day. The rest of the APAC region also ended the session higher, following the path set by US indices.

Equally, indices in Europe start the day in positive territory.

In China, the consumer price index (CPI) rose at its slowest pace in eight months in November, climbing 1.6% from a year earlier, which was less than the 2.1% annual rise seen in October and in line with consensus.The producer price index was down 1.3% from a year earlier, unchanged from an annual contraction seen in October.

Producer deflation was led by the steel industry, in which prices were down 18.7%. As we get further indications of an economic slowdown, heading in some areas to a recession, global demand is worsening and oil prices are falling further.

Central Banks

In the current context of economic downturn, the Federal Reserve (Fed), the Bank of England (BoE), and the European Central Bank (ECB) will each decide on interest rates next week and scaling back seems to be the common denominator.

According to a Reuters poll published on Friday, the ECB will take its deposit rate up by 50 basis points (bp) on Thursday 15 December to 2.00%. This is the view of 51 of 60 economists surveyed, while two said the ECB would be more cautious and seven said it would be more aggressive.

The ECB started its fight against inflation in July this year, later than its peers. But since then, it's been raising rates at its fastest pace on record. It has added 200 basis points to its key deposit rate in six months, taking it to 1.50%.

Yesterday, another Reuters poll revealed that 52 of the 54 economists think that the Bank of England will also raise rates by 50 basis points, taking borrowing costs to 3.5%.

And in the US the Fed is also likely to raise by half a percentage point to a target range of 4.25%-4.5%. The last time each of these three central banks met, they all raised their benchmark rates by 75 basis points.

Earnings

Elsewhere on the equity market, Berkeley Group says it expects build cost inflation to start to moderate during 2023 from current elevated levels.

Revenue came in at £1.2 billion, £20 million lower than last year. Berkeley Group this morning posted profit before tax of £284.8 million, marginally lower than the £290.7m reported in the first half (H1) of last year, and says it is on track to deliver pretax profit of approximately £600 million this fiscal year.

And Pendragon top investor Hedin Mobility has dropped its pursuit to take over the British auto retailer. In a statement released this morning, both parties cited challenging market conditions and an uncertain economic outlook.

Hedin currently owns nearly 28% of Pendragon. It had proposed earlier in September to buy Pendragon for 29 pence per share, valuing it at about £406m. The announcement sent the share price up by 21% at the time.