China: High inflation spike – ANZ

China has surprised markets with the inflation data for the month of January, as China market economist at ANZ Research Zhaopeng Xing notes. The USD/CNY is currently trading at 6.9804 after seeing a fall with the news.

Key quotes

“China’s CPI overshot market expectations in January, partially due to the virus outbreak, because a 1.4% m/m spike is higher than the seasonal increases seen over the past three years.”

“The virus outbreak has dampened commodity prices with Brent crude dropping more than 20% over the past two weeks. We expect China’s PPI to turn negative in February, exerting downward pressure on industrial activities in H1 2020.”   

“The probability of another cut in the 7-day reverse repo is low, as the People’s Bank of China (PBoC) will place emphasis on financial stability and efforts to contain the virus via liquidity injections and re-lending.”