Leaks and liberties

Most markets, financial or commodity, don’t like surprises. Additionally, as my fifth grade maths teacher told me: “if you don’t like the answer, change the question”. In practice, Chinese policy makers appear to be adhering to both tenets, as evidenced by the handling of the latest inflation data.

Indeed, not for the first time in recent months, figures have been ‘leaked’ ahead of official promulgation. For example, up until early yesterday the median estimate of 27 economists in a Bloomberg survey was for a CPI of 5.4%. But then Central China Securities came out and said it would be 4.9%. The Shanghai Composite rose 2.5%. And, today, what-do-you-know, inflation in January was 4.9% and equities closed unchanged.

Part 2 of this delivery, though, came in the form of jiggery pokery in the data calculation. China cut the weighting of food in the consumer price index by 2.21%, although it failed give the new weighting (it is thought that food previously accounted for a third of the basket of goods which made up the index). BGC called it a “fudging of the numbers”, although others, including Citigroup, were more generous. Similarly, Nomura has turned bullish on China’s stocks for the first time since November – calling them “inexpensive”. It also said that valuations and money supply growth favour equities even as interest rates increase. “Growth in money supply is still supportive for asset prices even with three increases in borrowing costs since mid-October”.

No, inflation hasn’t gone away either for consumers or producers - and the latter's prices rose from 5.9 to 6.6% in January; and the Statistics Bureau tinkered with the calculation here as well, thereby reducing it by 0.05%.

However, the Government may be simply buying time with the hope/expectation that inflation will moderate as the year proceeds. Note, too, that although new bank lending in January was Yuan 1.2 trillion ($182 billion) - and up from Yuan 481 billion in December - it was less than January last year when it was Yuan 1.4 trillion.

Similarly, China’s benchmark money market rate fell to the lowest level in a month on speculation the PBOC may pursue less aggressive monetary tightening. The seven day repurchase or ‘repo’ rate fell eight basis points to 2.64%, which is the lowest level since 2.58% on 17 January.

The more general economy also appears alive and well with passenger car sales in January up 15.3% from a year and imports of iron ore surging 48% in the same month as output in construction and the automobile industries rose.

“There’s a wind in my sails which will protect and prevail” – from 'Six Months in a Leaky Boat' by Split Enz

Shanghai Composite:
Today: +0.00% to 2,899.24 at close
This week: +2.5%
Since 5 July: +22.6%
Since 8 Nov: -8.2%
January: -0.6%
YTD: +3.3%

Hang Seng:
Today: -0.96% to 22,899.78 at close
This week: +0.3%
Since 25 May: +20.6%
Since 8 Nov: -8.3%
January: +1.8%
YTD: -0.6%

Oil futures: $85.16
Gold futures: $1366.30
(new ‘immediate delivery’ high of $1431.25 on 7 December)
Euro/$ spot: 1.3512

ECONOMY
• Shares rise on lower than - initially - expected CPI at 4.9%
• Food prices rise 10.3% (as it’s weighted it reduced)
• Car sales rise 15.3% in January

MONEY
• January lending, as leaked, jumps to Yuan 1.2 trillion: up sharply on December but lower than January last year
• Money market rate dips
• Bill yields rise
• First official hedge fund in China
• China Construction Bank plans to expand its stockbroking research team by 40%

REAL ESTATE
• Second home mortgage rates may rise
• Developer raises finance at 4.75%

DOMESTIC
• Wheat prices surge to a record level on drought in China

INTERNATIONAL
• North Korea’s Kim Jong Il calls for closer ties with China, says Xinhua News Agency

IRON & STEEL
• Iron imports to China rise 48% in January
• Global trade gathers momentum as ships at anchor fall; including an out-performance in China