China’s factory-gate prices fell more than anticipated in July, while consumer prices remained unchanged, indicating ongoing challenges from weak domestic demand and trade uncertainties. Consumer prices showed no annual change compared to a 0.1% rise in June, outperforming the expectation of a slight decline. <\/p>\n
Core consumer price index (CPI) experienced a 0.8% increase year-on-year, the highest in 17 months, driven by non-food items, while food prices decreased by 1.6%. Monthly CPI rose by 0.4%, contrasting with a 0.1% decrease in June. The producer price index (PPI) decreased by 3.6% year-on-year, in line with June’s near two-year low, and exceeded expectations of a 3.3% fall.<\/p>\n
This marks the 25th consecutive month of PPI contraction due to intense price competition in key industries. Monthly PPI dropped by 0.2%, an improvement over the previous month’s 0.4% decrease. Measures have been introduced by authorities to address competition issues in sectors such as automobile manufacturing.<\/p>\n
Additionally, extreme weather, including heatwaves and heavy rains, exacerbated economic challenges. While some believe deflationary pressures might ease, others warn that without strong demand-side stimulus, recovery could remain limited due to a housing slump, unstable US trade relations, and a weak labour market.<\/p>\n
The latest numbers from July show China’s economy is still struggling with weak demand. Consumer prices are flat, and factory prices are falling faster than expected. This tells us the deflationary pressure isn’t going away just yet.<\/p>\n
The 25-month drop in producer prices is a major red flag for the industrial sector. It points to ongoing price wars and too much supply in key industries like autos. This is a bearish signal for companies tied to manufacturing and construction.<\/p>\n
We have seen this playbook before, looking back at the period in late 2023 and early 2024. Back then, China’s official consumer price index fell for several consecutive months, the longest deflationary streak since 2009. That experience suggests this weakness could be prolonged without massive stimulus.<\/p>\n
In the coming weeks, we should be cautious about long positions in Chinese equities, like those in the Hang Seng Index or FXI ETF. During the 2023 slump, the Hang Seng fell below 15,000 points, a level not seen in over a year. Consider buying put options to hedge against or profit from further declines.<\/p>\n
This weakness directly impacts global commodities that China consumes heavily. With factory activity weak, we expect lower demand for industrial metals like copper and iron ore. This creates potential opportunities to short commodity futures or the stocks of major mining companies.<\/p>\n
A slowing China is bad news for its major trading partners, especially Australia. In mid-2024, we saw the Australian dollar weaken significantly when poor Chinese trade data was released. We should be looking at bearish positions in the AUD\/USD pair as this trend likely continues.<\/p>\n
However, the rise in core inflation driven by services shows some resilience in the consumer sector. Authorities are also trying to stop “disorderly competition,” which could put a floor under prices. We need to watch for any follow-through from these government measures.<\/p>\n
With these conflicting signals, betting on a clear direction is risky. Instead, using derivatives to play on increased volatility might be the smarter move. Look at setting up straddles on key indices to profit from a large price swing in either direction as this situation develops.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" China’s factory-gate prices dropped again in July; consumer inflation remained flat amid weak domestic demand.<\/p>\n","protected":false},"author":62,"featured_media":16965,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-28689","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/28689","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/users\/62"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/comments?post=28689"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/28689\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media\/16965"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media?parent=28689"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/categories?post=28689"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/tags?post=28689"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}