CHINA SAYS JUNE FOOD CPI +8.3 PCT FROM A YEAR AGO; NON-FOOD CPI CHINA JUNE PPI 0.0 PCT FROM A YEAR AGO (REUTERS POLL +0.3 PCT)
China inflation data is providing an unwelcome negative distraction to the great Fed debate
Deflationary signal looms ominously.
The tepid inflation signals are an unambiguous sign of current and looming economic problems facing China as a direct result of trade frictions with the U.S. The rise in food inflation should continue to persist particularly if pig prices continue to remain high due to the unfortunate spread of swine flu.
But the fall in non-food inflation suggest consumption remains weak which would likely put pressure for regulators to introduce more consumption stimulus
Prompt crude oil prices fell as this print supports the lingering bearish effect of the U.S.-China trade friction could shackle oil demand, but should not be a game changer given the massive U.S. inventory draw.
Gold has seen a small bounce off the intraday lows, but the sentiment remains decidedly bearish as trader continues to sell on upticks hoping the markets is willing to test significant resistance at $1380
Yuan has weakened on the increased likelihood of more PBOC stimulus.
The HSI is trending lower on the weaker mainland economic backdrop adding to the negative sentiment as fears build that the China banking sector could be set for a mini-implosion
The markets have been far too preoccupied with the Fed narrative, that we tend to lose sight of other significant affairs.
On July 12, U.S. Courts will announce a verdict on SPD, Bo COMM, and China Merchants Bank for providing loans to North Korea, against U.S. sanctions. If one or all these banks from USD dealings, it could put significant downward pressure on China's bank stocks. Investors have been far too, and we are likely to see more of a rush for downside protection to hedging against a possible sector meltdown