Rand Update in light of weaker Data from China

Attention this morning is drawn to the October Chinese Consumer Price Index (CPI), which was released this morning, and the implications it holds for both the USD and the ZAR.

h3. Inflation in China

Chinese October CPI posted softer than expected growth, falling to 1.3% year-on-year (y/y) from 1.6% y/y in September. The soft CPI data follows the Chinese October trade figures, that were released over the weekend, and showed a deeper than expected contraction in both import and export growth. There will be some traders that will view this softer inflation and weak growth readings as a reason for the Peoples Bank of China (PBOC) to add more monetary stimulus in an attempt to juice economic growth and might forecast a slightly more encouraging outlook for Emerging Markets (EM) such as South Africa and commodities as a result.

This logic would however ignore the fact that the Chinese central authorities have been trying to stimulate economic growth for a number of quarters now with little to no success. The Chinese economy has become debt saturated after unprecedented growth in debt in the post-2009 era.

h3. Commodity Demand

Demand for commodities and manufactured goods across the EM space is expected to remain weak in spite of PBOC stimulus, which isn’t a good story for South Africa, particularly considering that China is SA’s biggest trade partner.

h3. SA Manufacturing

Insight into the manufacturing story will be gathered from the September SA manufacturing production data today, which is unlikely to paint a pretty picture of the SA economy.

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