China PPI flipped to positive territory for the first time since 2012

China Producer Price Index (PPI) readings unexpectedly flipped to positive territory in the month of September, showing further sign of stabilization of the world’s second largest economy. The factory-gate price rose 0.1 per cent from a year ago, lifted by higher coal and copper prices. This ends the four years of deflation for China’s factories and may ease pressure in the rest of the world. 

The Consumer Price Index rose 1.9 per cent year-on-year, higher than market forecast of 1.6 per cent. The number suggested that consumer demand is starting to pick up and this further signals economic stabilisation. Higher inflation will limit the room for policy makers to ease the monetary policy in the months to come. 

Most Asian markets rebounded last Friday after China’s CPI and PPI release, as the market interpreted it as a positive sign amidst a prolonged commodities and economic downturn. Hang Seng Index closed 0.88% higher, recovering part of the losses from the previous days. USD/JPY rose to above 104.0 as demand for safety abated. Japanese stocks finished half a per cent higher. 

US equity closed flat despite earnings beat

US stocks closed flat on Friday despite impressive corporate earnings. So far it has been a mixed earning season, with the result from Alcoa, the aluminium giant, falling below Wall Street’s consensus. Elsewhere, financial names such as JP Morgan, Citigroup and Wells Fargo have all beat their forecasts.    

This week, a series of 3Q earnings from technology giants IBM, Netflix, Yahoo, Intel, as well as other industrial leaders including Blackrock, Johnson & Johnson, and Goldman Sachs will paint a clearer picture of US economic growth and ultimately decide market directions. Analysts suggested that there is chance that the earnings recession will come to an end soon, with a small gain in S&P 500 earnings in the third quarter.

In the near term, the US presidential elections and a possible “hard Brexit” negotiation will probably weigh on market sentiment. The relatively high valuation of US equities (over 20 × trailing P/E) will also limit the upside, where we can find a strong resistance zone at around 2,145-2,175 area. 

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