Expect more Chinese stimulus

December 9, 2015

A year of stimulus, interest rate cuts and most recently devaluations to its currency is finally having the desired effect on inflation in China as CPI data came in at 1.5%, slightly higher than the 1.4% expected. There are still wide spread deflationary pressures for producers who see continue to see prices tumble with PPI coming in as expected at -5.9%, but for consumers the stimulus measures have had a greater impact showing prices rising. However, for the PBOC inflation is still running well below target which means there remains plenty of room for further stimulus measures. Ever since the Yuan was added to the IMF’s reserve currency basket we’ve seen the fixing rate lowered in the last four days in a row and we’re likely to see a continuation of the renminbi’s devaluation. The data saw a mixed reaction from Asian markets overnight but crude prices are seeing a bounce with Brent finding major support at the $40 a barrel level and so this morning European indices are looking to commence trading in the black.

Yesterday’s UK manufacturing data was softer and caused GBPUSD to dip back below the 1.5000 level however this didn’t last very long with cable trading back to 1.5035 at the time of writing. The remainder of the day is quiet on the economic data front, but later this evening the RBNZ makes its latest interest rate decision where they are expected to cut rates from 2.75% to 2.50%, so the 0.6600 level on NZDUSD will be watched.

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