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China Wants World To Believe Inflation Jumped By 4.4%, In Line With Shadow Expectations, Fastest Fake Price Growth In Two Years
That China somehow magically pulled a 4.4% inflation number for October out of its hat is not surprising. After all this is precisely the number that the "local market" was expecting as there are no secrets in China, even if the Bloomberg surveyed Keynesian fundamentalists-cum-economists end up being "pleasantly surprised." Yet none of this is at all relevant: now even Credit Suisse's Sean Keane (see below) is openly ridiculing the magic 8-ball that the Chinese department of truth is. The only open question is whether this acceleration in the economy to a two year high will lead to a rate hike. And the answer, as Bank of America says, is no. Which means a whole of nothing is about to happen as a result of this latest non-news which just confirms that China's economy is telegraphed to be overheating at precisely the rate that its politburo has determined is just right.
First, the hilarious observations from Credit Suisse on the random number generator that China's economy is:
It’s worth noting that the local market is now expecting tomorrow’s October inflation print to come in at 4.4% [TD: we have a bingo], above the Bloomberg consensus of 4.0%. As the local Chinese market has a very good track record of correctly “predicting” data before it is officially released the reaction to a 4.4% number may be less of an outlier than it appears. When looking at this data its always worth remembering that somehow China is able to assemble data from around the country at a speed that defeats most better equipped statistical agencies around the world, and it does so across a geographical space many times as large, and with a sample set that should be hundreds of times bigger. How exactly this is done with such remarkable speed (given the lack of electronic payment data) remains a mystery.
All one can do is LOL at this definition of GIGO. And yet this very bullshit is what drives trillions in capital flows around the world based on a fact point that is totally devoid of any factual significance. EMT indeed.
As for whether China will actually hike rates based on this news, the short answer is no. Last night's RRR hike was purely a tightening to placate the US modestly, but more importantly to neutralize 9% of the Fed's QE2 (more below). As for an actual outright rate hike: forget it. BofA's Ting Lu explains:
How about rate hike? Difficult to guess
See more from A framework for data and policy at a confusing time. Frankly speaking, to make calls on rate hikes in the very short term (this week or this month) is extremely speculative. Unlike RRR hikes, which are determined by the PBoC itself, rate hike decisions are made by the premier or vice premiers. Actually, even most senior PBoC officials could have been surprised by the rate hike last month. That’s why we prefer to make rate forecasts for a longer time horizon. By expecting a 3.6% average CPI inflation in 2011, we expect three hikes before end-2011.
But let’s guess anyway: The art of central banking….
In the short term, we believe the art of central banking is more relevant than scientific calculations. Let’s assume CPI inflation in Oct rose to 4.4% [TD: funny how everyone guessed the precise number] from 3.6% in Sep, and if the PBoC hikes rates right after the data release (11 Nov), the market will likely believe the PBoC is not well prepared and lacks confidence. Instead, if we predict a decline (even a small decline) in headline YoY CPI inflation in Nov (released on 11 Dec), then it makes much more sense for the PBoC to hike rates after the release of Nov CPI inflation. Hiking rates when CPI inflation declines shows determination, good preparation and confidence on the part of the PBoC. With a view of inflation numbers for the rest of the year (down a bit in Nov and Dec), we believe the chance of a rate hike in Nov is quite low, while the probability of rate hike in Dec (especially after mid-December) will be significantly higher.
As to last night's 50 bps hike across the board in the Reserve Requirement Ratio, BofA's take is that this is merely an attempt at neutralizing the fast money entering its own economy, by offsetting some of the impact of QE2 (and why not: after all most of China's IPO are done in the US, exporting any capital markets derived inflation to the US - Bernanke welcomes it openly).
Impact on liquidity; further room for RRR hikes
This universal RRR hike will drain about RMB360bn or US$54bn (or 9% of the US$600bn of QE2 if put in perspective). According to the PBoC Governor Zhou Xiaochuan’s speech last Friday, China will build a “pool” to contain money inflow as a result of US’ QE2. With this 50bp hike, RRR will be 18.0% for the big four banks, 16.0% for Minsheng and Merchant, and 15.5% for other banks (smaller for rural credit unions). We believe RRR will continue to be hiked by another 100-150bp before end-2011.
Bottom line: whole lot of noise, absolutely no signal. Which means the idiot market will certainly react violently on this non-news. And judging by the 100 pip swing in the AUDJPY, the idiot market does not disappoint, and continues with the charade.
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Didn't they just raise their reserve requirements?
If you look at the history, reserve requirements are useless in fighting inflation in China. The reason that Beijing is reluctant to raise interest rates is that Chinese Banks lent two much in the past two years. Drastic interest hikes will make the majority of the loans turn sour.
The Reuters story indicates that food inflation in China is getting out of control:
"One such victim of inflation is Liang from Guangzhou who has to cook for a family of six. Just last year, her family could eat heartily for 1,200 yuan (US$180) a month. This year she needs to spend 2,200 yuan (US$330) per month to maintain the same quality of meals."
“Take cooking oil for example, we get three or four notices a day to increase the price,” the staffer said to Hong Kong’s Apple Daily."
The reality of inflation in China is taking a Weimarish turn.
Interesting, as that is OUR inflation they're eating.
Pretty soon, what China wants the world to believe, the world will believe. Kind of how it has been for the US till now, when the man behind the curtain has finally been outed, a naked liar.
Interestingly, have not read a "structural" analysis for China for the past year of so. Did the peasant's revolt when they found out that their sweatshop was closed upon returning back from their annual holiday? What is the real employment situation? Three gorges holding up? How is the grain stock situation after last month's floods?
Meanwhile everyone is distracted by number games.
Taiwan will be sacrificed in short order by the US, just like it tried to crown India with the UN security council crap, in the latest twist of the knife for it's old, battered ally, Pakistan... those are the events to watch for.
ORI
http://aadivaahan.wordpress.com
they have to keep up with bens fraud
My thoughts exactly. Pot, kettle...
One Chinese scholar argues that CPI was understated by as much as 7%. I think the Chinese consumers would agree with him. The official number of 3.3% was ridiculed by everyone who had to do their shopping in the real world.
Exactly. Even if prices are not increased, products can be downsized. Another form of inflation...
interesting news from japan.....
http://www.japantoday.com/category/politics/view/china-asks-japan-not-to-send-rep-to-nobel-peace-prize-ceremony
Half of CSCO losses in ES futures have already been recovered.
Yes, they have. As I said, CSCO has problems inherent to Cisco not the macro environment. The market will open lower and then move solidly green.
What are the inherent problems at Cisco ?
You probably mean half the losses in ES have been recovered (alongside gold). CSCO - not so much. As we pointed out, the market, or technically the AUDJPY, will most certainly respond to magic 8 ball noise out of China.
I was expecting the same thing but that move hasn't come to fruition yet. I would think that after the futures moves have "been priced" into the opening hour in the US equity markets, when traders realise that the news from China- even though it is bogus- does not bode well for the Australian exporter, then we'll see some more relevant reaction. A falter or lag in the Ozzie dollar would put a crimp in the carry trade (among the many reasons...), so it would be expected that the AUDJPY would be in the tank by now.
But it is not. My guess is that the pair is taking a cue from the AUDUSD pair, which is bouncing off par like a force field is in place. Once that level is solidly broken to the downside, watch for all sorts of shenanigans in the periphery. And just what do I mean by that? Hey, it's 2010- use your imagination.
Keep your eyes open...wide. This is not your mother's 4X.
:D
I think this Chinese video about sums it up.
http://dailybail.com/home/what-if-the-bankers-gorged-on-a-record-144-billion-in-bonuse.html
Dont it ?
is that an annualized rate? perhaps it was "accurate up to the point where we talked about a time frame"? clever use of footnoting i've found can be a very interesting way to "show one's educational talents."
"And yet this very bullshit is what drives trillions in capital flows around the world
based on a fact point that is totally devoid of any factual significance."
- Now now, you should not talk about US like that !
After all, Chairman Heli Ben is only trying his best
to kick-start the World Economy into Consumption..
Bottom line, this "bullshit" can go on for years and years. Yes, it'll end in tears but you can keep this running for a couple more decades easily. With that comes rising equity prices. It's a clown show. They chase in a circle dancing wildly until the music stops.
China has to appease the US. The US has to appease China. And no one gives a flying fuck about the rest of the world. This can go on for a very, very long time. And it will. Glad to know it probably won't happen in my life time but sucks for those who have kids.
only if the oil production plateau we've been on turns into a rising production volume. If it stays flat or declines, this cannot go on for more decades.
Exactly. And what are the odds of that? I'd say slim....to none.
The AUD/USD is a bad Joke ! The oz on parity with USD and the AUS cash rate at 4.75% pushes CPI costs for Australians through the roof with 10 billion AUD shortfall in the budget due to the plunging US Dollar.And Geitner keeps on blaming China, for currency debasement.What a fraud! I am a german Trader based in Sydney and as long as I can chose between the communist Republic of the USA and the neo-capitalist China,I will definately go with China every time.Besides,most of the Data coming out of the US is useless,because it is wishful thinking.The figures I look at is national Debt and real Unemployment and what the policies are to fix it ! Since I am a global trader I have no Interest in Fascism, Patriotism or Nationality but I look at competence and fiscal responsibility of People.And for my money,China wins every time.I consider myself a global citizen,a global free market trader.Everything else is just pretentious propaganda bullshit,because the only thing that counts for me on this Planet Earth is Trade and Value.
As Oscar Wilde once said: "Most people know the price of Everything and the Value of Nothing"...and as a free global market trader I am always looking at Value .
4.4 is 1/2 of 8.8 -- 8 is the chinese magic # for prosperity.
funny.
Non "core" inflation in China is running about 12-15%.
Recently returned from Chengdu and can say without a doubt you are correct.
Most of my Chinese friends & business partners are now multi-millionaires....mostly through the real estate bubble. They are trying to hold on to their gains, but they dont' trust the stock market anymore that the folks here do & they also know it's too dangerous to buy more RE. They are getting pretty pissed off watching their savings get pissed away 10-20% a year.
....Great food in Chengdu...
4.4% is cooked underestimated number. CPI has been underestimated for a while because China center gov does not want to adopt rate hike. Before it is ppl in HK buy stuff in Shenzhen, now it is ppl in Shenzen buy stuff in HK. The prices of most of ppl need on a day basis surge.
Maybe QE2 is simply practice for the Chinese government to learn how to deal with a free floating and freely convertible currency. A war game, tailor made for the CCP.
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