More progress in US-China trade talks likely to improve risk sentiment across markets, supportive of yuan and other EM Asian currencies: Scotiabank

More progress in US-China trade talks is expected to improve risk sentiment across the markets, supportive of the yuan and other EM Asian currencies, according to the latest research report from Scotiabank.

China’s CPI inflation rose to 2.3 percent y/y in March from 1.5 percent y/y a month ago, largely due to increasing pork and fuel prices and the base effect. According to the NBS, pork prices have risen 5.1 percent y/y last month with pork production industries suffering amid the outbreak of African swine fever, contributing 0.12 percentage points to the March retail inflation.

With China’s economic recovery gaining momentum, the nation’s CPI inflation is likely to accelerate moderately further in the second quarter before easing in late Q3 or Q4. Sheng Songcheng, a senior adviser to the PBoC, wrote in an article in the Xinhua-run Economic Information Daily that "with the implementation of various policies and the gradual recovery of market confidence, China's economy is expected to stabilize in the second quarter."

"Although rising CPI inflation may ease market expectations of near-term monetary easing, it won’t prompt the PBoC to tighten its monetary policy stance. We still expect the central bank to deliver RRR cuts to boost money and credit supply," the report further commented.

In the meantime, China’s PPI increased 0.4 percent in March from a year ago amid higher oil prices, up from a 0.1 percent on-year increase in February. The sustainability of the pickup in China’s factory-gate inflation is in doubt if considering the base effect approaching the year end, which will continue weighing on US inflation the rest of the year.

The UST yield curve will remain flat going forward, prompting the Fed to stay in a wait-and-see mode with the aim of averting a yield curve inversion, Scotiabank further noted in the report.