Looking Ahead to Major CPIs: China and Germany

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Before the European session opens tomorrow, we have some important data from China and Germany. The data could not only add some volatility to the markets but set the tone for the entire day.

Central banks are moving to more accommodative stances. So, changes in inflation are relevant as analysts try to figure out what will happen with interest rates, and how that will spill over into currencies.

Here are some things to help figure out how this data might influence the markets.

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Chinese Schedule and Expectations

PBOC

There are two bits of market-relevant data coming from China. The first doesn’t have a fixed time of release but is usually about a half hour before the release of CPI data. That is the PBOC report on new loans issued during the last month. Expectations are for these to jump to CNY1.1T from the CNY0.9T last month.

We follow the number of loans issued because it’s an indicator of how much consumer and investment spending is happening, which supports the economy and impacts inflation. Typically, this figure oscillates between CNY1.0T and CNY1.5T. And there was a major spike during the month of the Lunar New Year. This year’s was an increase over the prior year, showing that consumer spending remains relatively healthy.

The Chinese government has been taking a series of measures to boost the domestic economy. And the number of loans issued reflects this. After all, stability in new lending shows expectations of stability in the economy.

CPI

We are expecting the data that moves markets throughout Asia at 03:30 CET (or the day before at 21:30 EST). This will be the month over month CPI, projected to register -0.3% compared to 1.0% prior. This would lead to an annualized rate of 1.7%, an increase from 1.5% prior.

Inflation has been trickling down since October, showing weakness in consumer demand. One might even consider it likely to cause further interventions from the government to prop up the economy. These interventions could include cutting the reference rate, something that the Finance Ministry has acknowledged it is contemplating after the release of quarterly data.

A move higher in the CPI rate would likely be interpreted as the Chinese economy turning around a bit. The market could take it as an indication that the government’s policies are finally having an effect, putting off expectations for further intervention. On the other hand, if the number were to disappoint again, it would likely lead to support among equities.

Germany’s Inflation

Next at 08:00 CET (or 02:00 EST) we have the release of German CPI data. This is expected to increase by 0.4% monthly, and 1.3% annualized, in line with the prior month. While Germany isn’t the entire eurozone and doesn’t directly influence ECB policy, it is the largest component of the shared economy. And it’s often seen as the driver.

Inflation in Germany has been on the decline since October. This is a reflection of poor demand and lethargic (if at all) growth in the economy. A further sub 1.5% annual rate would put Germany’s CPI firmly back into where it was in 2017. This would completely erase the positive outlook built last year. It would also confirm the depressing outlook from the ECB that is projected to keep the next rate hike far in the future, if not change the direction to negative.

The HCPI is the harmonized to be compatible with the rest of the eurozone, and typically confirms the outlook of the non-harmonized number.

Lower CPI is likely to be interpreted as positive for equities, such as the DAX, promising to prolong accommodative monetary policy. However, it will probably be negative for the euro. We should remember that we get a host of other eurozone countries’ CPI at the same time, but it’s usually the German number that sets the trend.

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