Early Morning Call: CNH down as China CPI loses ground
It is becoming more and more unlikely that China will meet its government target of average consumer prices at about 3% in 2023.
Indices overview
US equity markets ended the session higher, with the S&P 500 entering bull market. APAC indices mostly rose overnight.
It is becoming more and more unlikely that China will meet its government target of average consumer prices at about 3% in 2023. On the contrary, the risk of deflation is a growing concern. China's consumer price index (CPI) rose 0.2% year-on-year (YoY), accelerating from a 0.1% rise in April, but missing the estimate of a 0.3% increase. Food price inflation, a key driver of CPI, slowed to 1.0% year-on-year from 2.4% in the previous month. On a month-on-month (MoM) basis, food prices fell 0.7%.
China's factory gate prices fell at the fastest pace in seven years. May PPI fell for an eighth consecutive month, down 4.6%.
Macroeconomics
The end of the week is very quiet in terms of macroeconomic data. Investors are already focussed on next week, with two big central bank meetings to come.
First is the US rate decision on Wednesday. Markets are pricing in a pause from the Federal Reserve (Fed). Ahead of the Fed decision though, markets will get an update on US inflation. The consumer price index, due on Tuesday, is expected to fall to 4.7% YoY, following a 4.9% rise the previous month. The focus will be on core CPI, forecast to fall to 5.4% YoY, from 5.5% in April.
Since the March headline CPI figure is below core CPI, the market fears the spread between the two indicators could be widening.
On Thursday, the European Central Bank (ECB) is expected to raise its key interest rates by 25 basis points, and again in July before pausing for the rest of the year. This is according to a poll conducted by Reuters which indicated that economists believe inflation across the single currency economies remains sticky.
After 375 basis points (bp) of hikes over the past year, economic activity across the region has slowed, with Europe's biggest economy - Germany - and the eurozone as a whole falling into a winter recession.
EVs
General Motors announced it will adopt Tesla's North American charging plug standard. GM electric vehicle (EV) buyers will now be able to use the Tesla Supercharger network. A similar agreement had earlier been made with Ford which means now that three of the top EV sellers in the North American market have agreed on a standard for charging hardware. It could turn out to be a major win for Tesla, which invested heavily to deploy its fast-charging stations across North America.
This agreement will have significant commercial and public policy implications. The Biden administration wanted to impose a rival "combined charging system". Now the alliance between Tesla, Ford and GM seriously challenges the White House's plans.
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