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China in Deflation: Negative Markets, but a Glimpse of Optimism for the Future

European markets opened in negative territory today, with only Piazza Affari resisting, hovering just above parity. The contrasting performance of financial markets highlights the complexity of the global economic landscape.

Deflation in China: October Data

While the American and European central banks focus on reducing inflation, China faces the opposite issue: deflation. In October, consumer prices decreased by 0.2%, and producer prices dropped by 2.6% compared to the previous year. This decline, the thirteenth consecutive one for producer prices, raises concerns about the stability of the Chinese economy.

Mixed Asian Markets

Asian markets are mixed, with Tokyo closing positively (+1.49%), Shanghai slightly unchanged (+0.03%), and Hong Kong below parity (-0.33%). On Wall Street, the Dow Jones recorded a slight decline of 0.12%, while the Nasdaq marked its eighth consecutive positive session with +0.08%. Uncertainty in international markets is fueled by divergent performances in major global stock exchanges.

Awaited Interventions from Central Banks

Today, investors await the scheduled interventions of Fed President Jerome Powell and ECB President Christine Lagarde to understand the future moves of these institutions and anticipate potential interest rate hikes. These decisions will have a significant impact on global markets and could shape the fate of the world economy in the coming months.

Tim Surprises with Higher Revenues

The Tim stock is under careful observation after presenting data exceeding expectations, with revenues exceeding 4 billion euros, a growth of 3.7%. However, the price of oil remains at its lowest in the last three months due to the slowdown in Chinese demand and the increase in US stocks, with Brent hovering around the psychological threshold of $80 per barrel. Tim’s performance demonstrates surprising resilience, contrasting with the negative trend in other sectors.

Chinese Deflation and Oil

Deflation in China is evident in October’s data, with consumer prices down 0.2% annually and producer prices decreasing by 2.6%, marking the thirteenth consecutive month of decline. This deflationary trend poses a significant challenge for Chinese authorities, who may be compelled to implement additional stimulus measures to support economic growth.

These data have revived the demand for additional monetary and fiscal stimuli to support the Chinese economy, highlighting that low inflation or even deflation are symptoms of an economic activity operating below its potential.

Pork and Inflation

However, a closer look at the data reveals that the decline in inflation is primarily attributable to the movement in pork prices, the most consumed meat in the country. This aspect, to some extent, diminishes the deflationary issue. Inflation influenced by specific factors such as pork prices could offer a more balanced perspective on the Chinese economic situation.

Optimistic Prospects for China

Despite the challenges, prospects for China have recently improved, as evidenced by the increase in growth estimates by the International Monetary Fund, which raised forecasts by 0.4% for both 2023 and 2024, thanks to the economic stimuli implemented by Beijing. This upward revision provides hope for economic recovery in the medium term, although careful assessments of evolving global conditions are required.

In conclusion, while China navigates through the challenges of deflation, optimism for the future is fueled by signs of resilience in key sectors and the upward-revised growth outlook. Investors remain vigilant for decisions from major central banks and closely monitor developments in international financial markets, seeking clues about the future directions of the global economy.

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