Insights 
VT 
China’s Consumer Price Index (CPI) reduced its deflationary trend, recording -0.3% year-on-year in September, compared to -0.4% in August. Core CPI, excluding food and energy, reached a 19-month peak at 1.0% year-on-year, up from 0.9% in August.
While CPI and Producer Price Index (PPI) deflation lessened in September, ongoing pressures remain due to US tariffs and weak local confidence. From January to September, the average headline and core CPI were -0.1% and 0.6% year-on-year, while PPI averaged -2.8% year-on-year. Forecasts anticipate CPI at -0.1% and PPI at -2.6% for 2025, with easing pressures in 2026 as government policies aim to boost consumption.
China’s Economic Growth
China’s economic growth has shown signs of slowing since early Q3 2025. Expectations are for real GDP growth to decelerate to 4.7% year-on-year and 0.7% quarter-on-quarter seasonally adjusted in Q3 2025. Accommodative monetary policies are predicted in light of ongoing US-China trade uncertainties, with a forecast 10-bps rate cut in Q4 2025 and potential further reductions to the reserve requirement ratio.
Given today is October 15, 2025, we see that China’s consumer price deflation eased to -0.3% in September, which is a slight improvement. However, with the economy slowing more noticeably in the third quarter, this suggests underlying weakness remains. The key takeaway is that the People’s Bank of China will likely step in with more stimulus.
Traders should prepare for an interest rate cut in the fourth quarter, as we are forecasting a 10-basis-point reduction to the key lending rate. This monetary easing, alongside a potential 50-basis-point cut to the Reserve Requirement Ratio, is designed to support growth. These actions would likely put downward pressure on the yuan, making long USD/CNH positions through forwards or options an attractive strategy.
Potential Stimulus and Impact on Markets
For equity derivative traders, the expected stimulus could create a short-term rally in Chinese stocks. Buying call options on indices like the CSI 300 or Hang Seng could capture this potential upside. However, given that recent data for September showed retail sales growth remains subdued at just 3.8%, confidence is still fragile, meaning any rally could be short-lived.
The persistent deflation in producer prices, which averaged -2.8% so far this year, confirms weak demand from factories. This signals a bearish outlook for industrial commodities that are sensitive to Chinese growth. Therefore, shorting copper or iron ore futures contracts appears to be a logical response to the ongoing industrial slowdown.
Overall, the conflict between weak economic data and the prospect of strong government stimulus will likely increase market volatility. The persistent US tariff issues add another layer of uncertainty, which was evident when similar trade disputes in the late 2010s caused sharp market swings. Traders could consider strategies that profit from this choppiness, such as buying straddles on major Chinese equity ETFs.
