Chinese economy: Weak inflation figures rekindle investors’ worries over China

The latest batch of data failed to assuage investors’ worries over a slowdown in the world’s second-biggest economy, and weighed on Asian stocks overnight. The producer-price index dropped 5.9% in September from a year earlier, marking the 43rd consecutive month of deflation. China’s central bank today set a weaker midpoint for the yuan as companies bought dollars.

Britain and China agreed to a series of initiatives in September ranging from an expanded currency swap agreement to a feasibility study for a scheme to connect the London and Shanghai stock markets.

The dollar was about 0.2 percent lower against the yen at 119.54 yen, while the euro added about 0.2 percent to buy $1.1394 after rising to a 3 1/2-week high of $1.1411 overnight.

The Commerce Department said USA retail sales edged up in September by just 0.1 percent from the previous month, and August was revised down to flat, as low gasoline prices pull down the value of sales.

MSCI’s broadest index of Asia-Pacific shares outside Japan.MIAPJ0000PUS slipped 0.2 per cent in early trade from their two-month high touched on Monday, though it was still up 8.6 per cent so far this month. Exports fell 3.7 percent, which was less than expected. “The Chinese economy is probably the largest risk that the global economy faces at this point”. Australian shares also extended losses after the Chinese price figures, with the S&P/ASX 200 index down 0.5%, reflecting China’s importance as Australia’s main trading partner.

“I doubt 10-year Treasury yields will exceed 2.3 percent by year-end given ongoing fears that weaker emerging-market growth will spill over to developed economies”, Nick Stamenkovic, a fixed-income strategist at broker RIA Capital Markets in Edinburgh, told Bloomberg. Gold miner Newcrest advanced 1.1 percent and Evolution Mining rose 3.1 percent as gold gained ground for a fourth straight session on expectations for a delay in the Fed rate hike.

Chinese shares were also lower, but only marginally. Domino’s Pizza Enterprises jumped almost 7 percent after announcing the acquisition of French-based pizza chain Pizza Sprint.

However, the figures fed hopes Beijing would use the latest report to unveil a fresh round of stimulus measures, having seen five interest rate cuts since November fail to provide any boost.

After US markets closed on Tuesday, J.P. Morgan Chase & Co. reported higher third-quarter profits but lower revenue.

Japan’s benchmark Nikkei index was down 1.8% at 17,907.39 points following Wall Street’s lead.

In a sign that the sentiment towards emerging markets may have turned a corner, the much-tracked Bank of America Merrill Lynch fund flow report showed that weekly outflows from emerging market funds were at their lowest since July.

However, central bank policy makers have turned dovish in recent weeks – helping emerging markets currencies – owing to turmoil on global markets caused by the China crisis.