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September Inflation Softer Than Expected, Solar Stocks Rebound

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Key News

Asian markets were mixed as Mainland China was nearly flat and Hong Kong was closed for its National Day holiday. The STAR Board managed a small gain and volumes were weak as Northbound Stock Connect was closed due to the market holiday in Hong Kong. Inflation data was released in Mainland China overnight along with new loans, which were weaker than expected, potentially giving the People’s Bank of China (PBOC) a reason to increase liquidity and proceed with another reserve requirement ratio RRR cut to support the economy. The quiet trading in Mainland markets overnight suggests that investors are awaiting clarity on the central bank’s stance following the economic data release.

China released both the consumer price index (CPI) and producer price index (PPI) last night before the Mainland market open. On the positive side, inflation was lower than expected in September, though still high, mirroring the record inflation seen in the US in September. The PPI, which measures the prices that producers pay for inputs, rose by a whopping +10.7% year-over-year, which was slightly higher than expected. However, the steep PPI rise was to be expected due to the recent energy crunch and surge in oil and other commodities.

Solar power stocks have risen for the past two days. The sector recently experienced a correction due to high commodity prices, especially for silicon, which is used in photovoltaic panels, and increasing demand for dirty energy sources amid the recent energy crunch. CICC analysts posit that the sector may see positive tailwinds soon thanks to supportive policies and the stabilization of raw materials prices. Targets for solar power infrastructure construction in China remain ambitious despite the slowdown in construction due to inclement weather and surging raw material costs.

The director of China’s CDC announced that if vaccination rates rise above 85% in the new year, the country may scrap quarantine requirements for foreign visitors.

Some analysts expect weak Q3 results for Tencent as the material impacts of regulation on gaming and advertising become crystallized. However, Mainland investors have been buying its stock in size given its favorable valuation. Presumably, unlike Western analysts, Mainland investors are expecting positive results.

H-Share Update

Hong Kong markets were closed overnight.

A-Share Update

Shanghai, Shenzhen, and the STAR Board closed -0.10%, -0.08%, and +0.19%, respectively, on volume that was -3% lower than yesterday as Northbound Stock Connect was closed due to the market holiday in Hong Kong, meaning that foreign investors could not trade Mainland stocks.

Last Night’s Exchange Rates, Prices, & Yields

  • CNY/USD 6.44 versus 6.43 yesterday
  • CNY/EUR 7.47 versus 7.44 yesterday
  • Yield on 1-Day Government Bond 1.70% versus 1.70% yesterday
  • Yield on 10-Year Government Bond 2.96% versus 2.96% yesterday
  • Yield on 10-Year China Development Bank Bond 3.26% versus 3.26% yesterday
  • Copper Price +2.40% today