11/11/2014
By Jennifer Coombs

In the absence of major economic releases, and bellwether stocks reporting earnings on Monday, November 10th, the market was left exposed to geopolitical and international market movements and news. There was a pickup in data out of China, namely in the level of consumer prices. For the month of October, China’s annual rate of inflation was recorded at 1.6%, which was unchanged from September, but remains relatively low compared to the rest of the year.

The politically sensitive food prices accelerated to 2.5% while non-food costs rose at a slower 1.2% rate. Among food prices, the highest increases came from eggs (+16.4% in October from +12.9% increase in September) and fresh fruits (+15.2% from +16.7%). Cost of fresh vegetables (-7.2%t from -9.4%) and pork (-3.1% from -2.9%) dropped further. In other categories, prices were stable for clothing (+2.4%) and transportation and communications (-0.3%), while higher costs were seen for household equipment and maintenance services (+1.2% from +1.1%) and health care and personal products (+1.3% from +1.2%). For 2014, the government has set the inflation target at around 3.5% and it appears that it may actually reach this target. On a month-over-month basis, consumer prices were relatively unchanged compared to a 0.5% in September over August.

Despite the apparently massive jump in food prices, overall inflation in China is lower for 2014.

Over the weekend, China’s money-market rates fell and interest-rate swaps traded near a two-year low on speculation the central bank will need to make sure that there is an ample supply of funds to counter an economic slowdown if necessary. While the talk of stimulus has been thrown around over the last year, it appears that the dust may be settling for China after all.

Jennifer Coombs
Wall Street Strategies

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