We maintain our core view that economic activity in China will rebound latest by September and stabilize in August. This is a very out of consensus view in light of recent market and global macro data turbulence. This view is based on our proprietary model of leading indicators for China. For details, please refer to our July 29, 2011 report Asia Strategy Focus: Risk on in Q3 11, growth set to rebound.
Today’s strong July trade data (see Figure 1 in attached document) which surprised on the upside is supportive of the aforementioned views.
In addition, demand side pressures on CPI inflation remain strong as indicated by yesterdays’ above consensus 6.5% y/y July CPI inflation print.
The momentum of inflation will continue to accelerate in our view (see Figure 2 in attached document).
We maintain our view of a 25 bps hike in policy interest rate hikes by the PBOC in August.
We are now shifting the timing of these hikes from first to second half of August due to recent weaknesses in financial markets.
Beyond August, we may see a further 50-75 bps hike in policy interest rates by end-2011.
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http://www.easyforexnews.net/wp-content/uploads/2011/08/AsiaFlash10Aug2011Published.pdf
Skandinaviska Enskilda Banken AB