Charts of the Day
We’ll get to the US inflation surprise shortly but first, one very interesting development is that the six-month flow of credit ticked up relative to GDP in China in October. That means China’s six-month credit impulse is now marginally positive, although the 12-month one – the one people usually quote- is still falling because of the sharp drop in credit growth earlier this year:
Traditionally we think of improving credit conditions in China as a good thing for markets, especially commodities. But yesterday we also saw US inflation surge to above 6% in October, so looser – or at least no longer tightening – credit conditions in China are not necessarily coming at a great time.
If you’d like to learn more about the credit impulse, check out this thread (retweets much appreciated!). We’ll be posting the credit impulse charts on the end of that each month so you can check there for the latest updates in the future.
🚨🚨🚨A Thread: What are credit impulses and why should you care?
First, let’s focus on China’s credit impulse, as that tends to get the most attention
This chart shows the %YoY change in Chinese credit outstanding. It’s still close to 10% – so not much to worry about? (1/17)
Macro
US CPI inflation rose 6.2% in October – the highest since 1990 when it reached 6.3%.
That 1990 level will be surpassed soon. If the monthly price changes matches that from the past six months, inflation will be 7.2% in December:
Inflation rose in most categories, which will concern the Fed.
Markets
Some respite though as the weekly EIA report showed crude inventories rose by 3.3 mn barrels last week, which sent oil prices down by 3%.
Nonetheless, the inflation data rattled markets, with bond yields rising sharply
Improving credit conditions in China could put further upward pressure on US yields.
Could also be a reason that the recent weakness of China’s stock market is behind us.
Conversely, the US equity market suffered from the inflation news and rise in bond yields, which weighed on tech sectors, as well as the drop in oil prices which pulled down the energy sector
The key winner was gold, which rose despite a modest increase in real yields yesterday – they remain very low though.
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