China Market falls on deflationary data

The Mainland China equity market closed down on Tuesday, 10 September 2019, snapping six sessions of winning streak, as investors elected to book recent gains after the nation's producer price index fell further into deflation, underscoring how the trade war with the US continues to be a drag on growth of the world's second largest economy. At closing bell, the benchmark Shanghai Composite Index declined 0.12%, or 3.54 points, to 3,021.20. The Shenzhen Composite Index, which tracks stocks on China's second exchange, was down 0.11%, or 1.89 points, to 1,687.31. The blue-chip CSI300 index dropped 0.34%, or 13.69 points, to 3,959.26.

China's factory-gate prices shrank at the quickest pace in three years in August, falling deeper into deflationary territory. China's producer price index (PPI), reflecting the prices that factories charge wholesalers for their products, fell 0.8% in August. In July, the PPI fell into negative territory, at minus 0.3% compared to a year ago, and down from the flat reading in June.

China's consumer prices rose 2.8% year-on-year in August, the same pace of growth as seen in July, figures from the National Bureau of Statistics showed Tuesday. Food prices surged 10% driven by pork prices. Meanwhile, non-food price inflation eased to 1.1% from 1.3%. Excluding food and energy, core inflation came in at 1.5% versus 1.6% in July. On a monthly basis, consumer prices gained 0.7% after rising 0.4% in July. This was the second consecutive increase in prices.

Also, risk sentiments were hammered after Fitch Ratings slashed its growth forecasts for the global economy, citing protectionism and China's slowdown. the agency predicted China's growth rate to fall to 6.1% in 2019 and 5.7% in 2020 because of US tariffs and China's restrained policy response.

Shares of technology and financials led the indexes lower. China National Software & Service fell 8.5% to 84.24 yuan, while Foxconn Industrial internet was down 1.7% at 15.1 yuan. Ping An Insurance fell 1.1% to 89.44 yuan, China Merchants Bank lost 1.4% to 35 yuan, while Citic Securities was down 0.5% at 24.2 yuan.

CURRENCY NEWS: China yuan was little changed against greenback on Tuesday, after firmer mid-point fixing by central bank. The firmness in yuan was also supported by optimism that an agreement on trade will reach between the United States and China after U.S. Treasury Secretary Steven Mnuchin said on Monday that the two sides have "made a lot of progress" in trade talks and that the United States will seal an agreement if it "can get a good deal" in the coming weeks. Chinese officials at the vice-minister level will travel to Washington in mid-September, followed by meetings in Washington between Chinese Vice Premier Liu He, Mnuchin, and U.S. Trade Representative Robert Lighthizer. Prior to market opening, the People's Bank of China set the midpoint at 7.0846 per dollar, 5 bps firmer than the previous fix of 7.0851. Spot yuan changed hands at 7.1162 per dollar at midday, 0.07% stronger than the previous late session close.

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