Introduction: China’s prices fall at fastest rate in 15 years as economy fights deflation
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Consumer prices across China are falling at the fastest pace in 15 years, as its economy struggles with weak demand.
China’s consumer price index fell 0.8% year-on-year in January, data released this morning showed. It’s the fourth straight month of declines, and the biggest contraction since 2009 after the financial crisis.
The inflation rate was dragged down by falling food prices, which dropped by 5.9% year-on-year in January.
Pork prices dropped by 17%, and were a major drag on inflation, while fresh vegetables were 12.7% cheaper than a year ago and fruit cost 9.1% less.
🇨🇳#inflation #China #reporting
China – consumer inflation CPI (Jan)
m/m = +0.3% (expected +0.4% / previously +0.1%)
y/y = -0.8% (expected -0.5% / previously -0.3%)Traditionally, the media write about deflation in China
The fall in consumer prices in January was the strongest… pic.twitter.com/75KSrAVMSA
— FinNews (@FinNews_) February 8, 2024
China’s factories continued to cut their prices last month, too. The producer price index (PPI) slid 2.5% from a year earlier in January after a 2.7% fall the previous month.
China’s consumer prices dropped into deflationary territory last summer, and prices have been flattish since.
Its economy has struggled as the bounceback following the lifting of Covid-19 restrictions falters, and as its indebted real estates sector contracts.
The drop in annual inflation puts more pressure on Beijing policymakers to take fresh steps to stimulate the economy.
China’s stock markets have rallied a little today.
Kyle Rodda, senior financial market analyst at capital.com, says the markets have “ostensibly reacted favourably” to disappointing Chinese price data.
While a very concerning sign for China’s economy, which could be becoming entrenched in a debt and deflation cycle, the markets arguably responded in a positive way to the news.
Perhaps markets see the terribly low number as a potential catalyst for more muscular monetary or fiscal stimulus from the central government, which, up until this point, has been moderate in applying countercyclical policy.
The agenda
-
9.30am GMT: Latest weekly data on UK economic and business activity
-
1.30pm GMT: US weekly jobless claims figures
-
3pm GMT: Bank of England policymaker Catherine Mann to give speech: “Mind the Gap(s): Inflation Data and Prospects”
Key events
More than 200 companies have joined a new US initiative, created by the Biden administration, to support the safe development and deployment of generative AI.
Commerce Secretary Gina Raimondo has announced the U.S. AI Safety Institute Consortium (AISIC) this morning. Many of the major players in AI have joined, including OpenAI, Google and Microsoft, along with Meta, Apple, Amazon.com, Nvidia, Palantir, and Intel.
Financial groups JPMorgan Chase and Bank of America are also on the list, as are BP, Cisco, IBM, Hewlett Packard, Northop Grumman, Mastercard, Qualcomm and Visa, and major academic institutions and government agencies.
Raimondo says:
“The U.S. government has a significant role to play in setting the standards and developing the tools we need to mitigate the risks and harness the immense potential of artificial intelligence.”
DS Smith receives “highly preliminary expression of interest” from Mondi
There’s more takeover action bubbling in the City today.
Shares in packaging firm DS Smith have jumped 10% after it revealed it has received a “highly preliminary expression of interest” from rival, and fellow FTSE 100 member, Mondi.
It says:
The Board of DS Smith understands that Mondi is considering a possible offer for DS Smith although no proposal has been received at this stage.
There can be no certainty as to whether any proposal will be made or the terms of any such proposal. A further announcement will be made if and when appropriate.
Mondi now has until 5.00pm on 7 March to make an offer, or walk away for six months.
NatWest appoints Emma Crystal to run Coutts
It’s official: NatWest Group has announced the appointment of Wealth Management executive Emma Crystal as the new CEO of its Wealth Businesses, including Coutts, subject to regulatory approval.
Paul Thwaite, NatWest’s interim CEO, says:
“Emma’s extensive Wealth Management experience and deep client focus make her the ideal person to lead our Wealth Businesses at this time.
The UK Wealth Management market is large and growing and Emma’s proven ability to work across organisational boundaries will be invaluable in helping us deliver an outstanding client experience and achieve our growth ambitions.”
As covered earlier (9.38am), the position has been vacant since Peter Flavel was pushed out of Coutts in the row over the “debanking” of Nigel Farage.
More UK mortgage-holders fall into arrears
Rising cost-of-living pressures and higher interest rates have pushed more mortgage holders into arrears on their loans, new data shows.
UK Finance reports that the number of homeowner mortgages in arrears increased by 7% in the last quarter of 2023, to 93,680.
There was an 18% increase in buy-to-let mortgages in arrears, up to 13,570, as more landlords struggled to cope with higher borrowing costs.
But although arrears are rising, the number of homeowner mortgaged homes being taken into possession dropped by 14% in the last quarter, to 540.
Also, 500 BTL mortgaged properties were taken into possession in Q4, 11% greater than the previous quarter.
That combined total of 1,040 repossessions in Q4 2023 is almost half the nearly 2,000 repossessed in the last three months of 2019, before the pandemic.
Eric Leenders, managing director of Personal Finance at UK Finance, says:
“The number of mortgage holders in arrears, whilst still low, is continuing to rise as the cost-of-living and high interest rates take their toll on households.
Importantly, help is available to anyone worried about their finances – please reach out to your lender as soon as possible to discuss the support options available. Lenders have teams of trained experts ready to help. Contacting your lender to find out what support is available won’t affect your credit score.”
NatWest Group is turning to an executive from UBS to run Coutts, its private bank, to succeed the top Coutts executive who was forced out during last year’s ‘debanking’ row involving Nigel Farage.
Sky News report:
Sky News has learnt that NatWest has lured Emma Crystal, who has also worked for Credit Suisse, to become the next chief executive of its wealth management division, which includes Coutts.
Ms Crystal, who is expected to join later this year, will replace Peter Flavel, who left NatWest last summer.
The Guardian understands Crystal’s appointment could be announced later today.
Employees at almost one in 10 UK companies are having to work extra hours to make up for worker shortages, the latest realtime data from the UK economy shows.
The Office for National Statistics says:
In late January 2024, 19% of businesses with 10 or more employees reported they were experiencing worker shortages, broadly stable with late December 2023; of those businesses, 49% reported that their employees were working increased hours as a consequence.
The ONS also reports that UK spending on debit and credit cards increased by 2% last week, and there was a small rise in footfall on the high street.
China’s deflation problem highlights the country’s economic malaise, explains Susannah Streeter, head of money and markets at Hargreaves Lansdown:
While inflation is still an unruly force central banks are attempting to tame in many nations, China is grappling with its evil twin. Deflation.
Prices have fallen at their steepest rate since 2009, with the consumer price index falling 0.8% compared to a year earlier. Although falling food prices, particularly pork, is partly behind the trend. This was exacerbated by sharply lower demand during the month compared to last year due to the lunar new year celebrations landing in February, but underlying weakness remains with non-food inflation falling back.
China is still mired in a property slump, affecting wealth perceptions and making consumers more cautious about spending big. Small stimulus measures aimed at increasing trading activity and lending into the economy have helped revive the Chinese stock market this week, but these are likely to be sticking plasters rather than a longer-term treatment for sluggish economy.
Shipping giant Maersk has warned that oversupply in the sector will hit its earning this year, prompting it to suspend its share buy-back programme.
In new financial guidance for 2024, Maersk says it could make an underlying loss of up to $5bn this year, although it could manage to break even.
Earnings before interest, tax, depreciation and amortisation this year will be between $1bn and $6bn, Maersk predicts, down from $9.6bn in 2023.
And while the Red Sea crisis is pushing up shipping rates, market conditions are likely to remain challenging, it says.
Vincent Clerc, CEO of A.P. Moller-Maersk, explains:
The current market remains one of robust volumes, but while the Red Sea crisis has caused immediate capacity constraints and a temporary increase in rates, eventually the oversupply in shipping capacity will lead to price pressure and impact our results.
The ongoing disruptions and market volatility emphasize the need for supply chain resilience, further confirming that Maersk’s path toward integrated logistics is the right choice for our customers to effectively manage these challenges.
Having benefitted from soaring shipping rates in the pandemic, Maersk’s earnings have been hit by the drop in prices to ship containers around the world.
For 2023, it has reported profits on an EBIT basis of $3.9bn, down from $30.8bn in 2022.
Last November, it announced 10,000 job cuts, due to the drop in demand triggered by the global economic slowdown.
Shares in Maersk have dropped 13% this morning.
SSE hit by wrong sort of weather
Bad weather has hampered energy firm SSE’s output from renewable power sources last year, and slowed the rollout of new wind turbines.
SSE has reported that its SSE Renewables output over the last three quarters was around 15% below plan, having been hit by “mixed weather conditions, short-term plant outages” and the rephasing of its flexible hydro output.
SEE says that “exceptionally still and dry weather conditions” hit output at its onshore wind, offshore wind and hydro business.
Also, work on an offshore wind farm at Dogger Bank A has been disrupted by a series of storms.
SSE says:
Turbine installation on Dogger Bank A has been affected by challenging weather conditions with vessel availability and supply chain delays further impacting progress.
SSE points out there have been 10 named storms in the 2023/24 season – Agnes, Babet, Ciaran, Debi, Elin, Fergus, Gerrit, Henk, Isha, and Jocelyn.
John Moore, senior investment manager at RBC Brewin Dolphin, says:
“Unfavourable weather has had a negative impact on SSE, showing it is not all plain sailing for the renewables sector even as the policy environment improves.
Despite this, the company remains on target to meet its previous guidance for the year, with the transition to a rebased dividend that is part of its plans for shareholder returns combined with significant capex investment.
SSE’s shares are down -10% in the year to date, but it has strong prospects and a good amount of momentum, putting the company in a strong position – even if inclement weather conditions cause a blip in performance in the short term.”
Unilever CEO says “our competitiveness remains disappointing”
The new boss of consumer goods giant Unilever has admitted that its competitiveness “remains disappointing, despite a return to sales growth and a pick-up in profit margins.
Unilever’s CEO, Hein Schumacher, told the City:
“Today’s results show an improving financial performance, with the return to volume growth and margins rebuilding.
However, our competitiveness remains disappointing and overall performance needs to improve. We are working to address this by improving our execution to unlock Unilever’s full potential.”
Unilever reported underlying sales growth of 7.0% for 2023 – due to a 6.8% increase in pries, and just 0.2% in sales volumes.
Underlying price growth decelerated from 10.7% in the first quarter of last year to 2.8% in the fourth quarter, due to a slowdown in raw material inflation during 2023.
Nutrition and Ice Cream faced the highest input cost inflation in 2023 which translated into higher pricing, Unilever says.
Only around a third of the company’s brands increased their market share last year, as customers in Europe shifted to supermarket brands, while Americans bought more “super-premium” goods.
Unilever’s board has approved a share buyback programme of up to €1.5 billion to be conducted during 2024.
Shares in the company have jumped by 3.4% in early trading.
In the financial markets, Japan’s Nikkei share index has closed at its highest level in 34 years.
Investors in Toyko drove the Nikkei up to its highest closing level since February 20.
Sentiment was boosted by a rally on Wall Street, where mega tech stocks continue to shine.
Shares also rallied after a high-ranking Bank of Japan (BOJ) official signaled that the central bank would only tighten policy gradually.
Reuters explains:
BOJ Deputy Governor Shinichi Uchida said in a speech that came in the middle of the morning trading session that conditions were falling into place for an exit from massive stimulus, but “even if the BOJ were to end our negative interest rate policy, it’s hard to imagine a path in which it would then keep raising the interest rate rapidly.”
Bloomberg reports that economists see deflation pressure in China continuing for at least another six months, largely because of the real estate turmoil.
They explain:
While China was able to reach an official growth goal of “around 5%” in 2023, repeating a similar performance this year may be difficult without bigger efforts by policymakers.
“The prolonged property woes and stock market volatility hurt household sentiment,” said said Raymond Yeung, chief economist for Greater China at Australia & New Zealand Banking Group Ltd.
Housing market outlook has turned modestly brighter, say surveyors
Conditions are brightening in the UK property sector, surveyors say.
Buyer demand, agreed sales, and new instructions all moved out of negative territory in January, the latest survey from The Royal Institution of Chartered Surveyors (RICS) this morning shows.
Surveyors also reported that house prices were lower, but at a slower pace than in recent months, RICS says, with signs of stabilisation in London, Scotland and the North West of England.
RICS Senior Economist, Tarrant Parsons, says:
“The UK housing market has seen a continued improvement in buyer activity through the early part of the year, supported by the recent easing in mortgage interest rates.
Although sales volumes through much of the year ahead are likely to remain relatively subdued compared to the longer-term average, the outlook has now turned modestly brighter on a consistent basis over the past few survey reports.
After a year of “inflated” gloom, optimism appears to be seeping into @RICSnews surveyors consciousness. Their Jan 24 report showing an inc in buyer demand (+7%) & agreed sales (+5%). pic.twitter.com/sH48Wmu1GP
— Emma Fildes (@emmafildes) February 8, 2024
Despite national house prices residing in neg territory, -18%, this reading has edged up over the past 5mths. Looking ahead, surveyors pegged London, Wales, North West, Scotland & Northern Ireland to make the biggest come back in the next 3mths pic.twitter.com/UOa50poJFu
— Emma Fildes (@emmafildes) February 8, 2024
Here’s Ipek Ozkardeskaya, senior analyst at Swissquote Bank, on today’s China’s inflation data:
China announced this morning that deflation accelerated in January to -0.8% y-o-y, faster than a 0.5% deflation penciled in by analysts and the fastest price drop in over 14 years. In plain English, it means that the Chinese efforts to boost growth and bring inflation back are not working according to the plan.
Money poured into the Chinese system doesn’t circulate in a way to stimulate economy – blame people who lost confidence – and the radical measures that the government has put in place to prop up equity valuations hardly help China’s battered stock markets to get back on their feet.
Today, sentiment in the CPI 300 index is mixed. I was writing yesterday that a deeper than expected deflation number will certainly encourage Chinese authorities to announce more stimulus measures. But measures alone won’t help getting the Chinese markets’ heads above water if investors don’t play along.
Another worry about the Chinese recovery is that because the Chinese dream has been dashed by a $7 trillion selloff in the equity markets, many could be tempted to take their loss and walk away in the slightest recovery. In summary, the road to a sustainable recovery seems far away.
ING: This is probably the bottom for China’s inflation
China’s January’s -0.8% annual inflation reading could mark the low point in the current cycle, according to Lynn Song, ING’s chief economist for Greater China.
Song argues that China is not trapped in a “deflationary spiral”, and predicts that pork prices could pick due to demand in this month’s Lunar new year holidays.
Song explains:
Sequential data paints a more upbeat picture. In MoM terms, headline CPI rose 0.3%, food CPI rose 0.4%, and non-food CPI rose 0.2%. While a far cry from the above-target inflation levels seen in many other economies, these numbers do not imply China is stuck in a deflationary spiral.
Furthermore, China’s pork cycle also indicates that the drag from pork prices will also fade in the coming months. While still a major drag in January’s data, pork price inflation has actually risen for the past two months, and the December 2023 MoM change in the pig stock was the largest decline since March 2022. With expected demand for the Lunar New Year holiday in February, this could return to positive growth in next month’s release.
As such, considering the more favourable base effects for February’s data, we see a high likelihood that January’s data could mark the low point for YoY inflation in the current cycle.
Introduction: China’s prices fall at fastest rate in 15 years as economy fights deflation
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Consumer prices across China are falling at the fastest pace in 15 years, as its economy struggles with weak demand.
China’s consumer price index fell 0.8% year-on-year in January, data released this morning showed. It’s the fourth straight month of declines, and the biggest contraction since 2009 after the financial crisis.
The inflation rate was dragged down by falling food prices, which dropped by 5.9% year-on-year in January.
Pork prices dropped by 17%, and were a major drag on inflation, while fresh vegetables were 12.7% cheaper than a year ago and fruit cost 9.1% less.
🇨🇳#inflation #China #reporting
China – consumer inflation CPI (Jan)
m/m = +0.3% (expected +0.4% / previously +0.1%)
y/y = -0.8% (expected -0.5% / previously -0.3%)Traditionally, the media write about deflation in China
The fall in consumer prices in January was the strongest… pic.twitter.com/75KSrAVMSA
— FinNews (@FinNews_) February 8, 2024
China’s factories continued to cut their prices last month, too. The producer price index (PPI) slid 2.5% from a year earlier in January after a 2.7% fall the previous month.
China’s consumer prices dropped into deflationary territory last summer, and prices have been flattish since.
Its economy has struggled as the bounceback following the lifting of Covid-19 restrictions falters, and as its indebted real estates sector contracts.
The drop in annual inflation puts more pressure on Beijing policymakers to take fresh steps to stimulate the economy.
China’s stock markets have rallied a little today.
Kyle Rodda, senior financial market analyst at capital.com, says the markets have “ostensibly reacted favourably” to disappointing Chinese price data.
While a very concerning sign for China’s economy, which could be becoming entrenched in a debt and deflation cycle, the markets arguably responded in a positive way to the news.
Perhaps markets see the terribly low number as a potential catalyst for more muscular monetary or fiscal stimulus from the central government, which, up until this point, has been moderate in applying countercyclical policy.
The agenda
-
9.30am GMT: Latest weekly data on UK economic and business activity
-
1.30pm GMT: US weekly jobless claims figures
-
3pm GMT: Bank of England policymaker Catherine Mann to give speech: “Mind the Gap(s): Inflation Data and Prospects”