CHINA: Market players continue to digest the host of mostly strong data
released overnight from China. Retail sales rose 22.1% y-o-y, fixed
asset investment was up 26.6%, but industrial output rose only 12.8%
disappointing those looking for +19%. CPI rose 2.7% and PPI rose 5.4%
y-o-y vs consensus at +2.7% and 5.1% consensus. Credit Suisse’s China
economist forecasts CPI inflation at 5.5% y-o-y by the end of 2010,
driven by “high food prices and rapid wage increases.” He looks for
interest rate hikes in the second half, with the one-year lending rate
rising by 162bp and the deposit rate rising by 216bps. Higher inflation
does not mean an imminent yuan reval. “We note that in 2003-2005, the
PBOC revalued the currency only after it had started hiking rates and
inflation had started to fall,” Credit Suisse says.