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Chinese Inflation data was positive; the chatter about trade and production data is even more bullish

CPI data released last evening showed that Chinese consumer prices declined on a year-over-year basis for the fourth consecutive month in May, registering at -1.4%. Producer prices for May arrived at -7.2% Y/Y,  the lowest Y/Y level in decades. With the assumption that rising energy commodity price levels will taper any threat of deflation, the market reaction to the data was uniformly positive.

Last night's rally in Shanghai had less to do with today's data and  more to do with May import and export data scheduled for release by the NBS tomorrow, as well as production numbers to be released on June 11th.  Somewhat absurdly, last night Ming Pao Daily reported that industrial output grew 8.9% y/y in May based on "unspecified sources". That's right, Chinese economic data "whisper numbers" are now driving momentum in Shanghai.

With mounting anecdotal evidence from shipping sources and base metal exporters suggest that the initial flurry of activity after the initial rush of credit stimulus in January and February may be contracting somewhat, not to mention the dearth of reliable data from Central and Western production and transport hubs,  we are frankly suspicious of any and all bullish rumors being promoted by anyone no matter how well placed their sources. 

We are long Chinese equities via the close end fund CAF , and remain bullish on the recovery process there despite peripheral negative data points creeping  into the margin from the credit and commodity markets. There is an old adage, "buy on rumors,  sell on news" - pay close attention to when we make changes in our portfolio in case we decide to heed it.

Andrew Barber

Director

MACRO WHISPER NUMBERS - china23