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China falls deeper into deflation territory, hitting markets, as UK house asking prices


Introduction: China’s consumer price drop adds to deflation fears

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

While most of the advanced world is struggling with inflation, China has the opposite problem.

The world’s second-largest economy has dropped further into deflation territory, with consumer prices falling last month, new data released last weekend shows.

China’s consumer price index (CPI) dropped 0.5% on a monthly basis in November, showing that prices of a basket of goods and services fell compared with October.

CPI was also 0.5% lower on an annual basis, China’s National Bureau of Statistics (NBS) reported, which is the steepest drop since November 2020.

The drops have disappointed investors, as they indicate rising deflationary pressures as domestic demand remains subdued.

Kyle Rodda, senior financial market analyst at capital.com, says:

Chinese stocks have sunk as investors digest the weekend’s disappointing price data. Deflation is deepening, and while debate rages about why, the trend is undeniable: consumer prices are falling, and producer prices have been negative for more than a year. The data simultaneously indicates anaemic demand and the eroding profitability of Chinese companies.

The latest pledges of deeper fiscal support from last week’s Politburo meeting have amounted to little and may be considered insufficient to spark the economy out of this rut.

China stocks testing 12-month lows. Crisp. pic.twitter.com/60a6YjJQM6

— Kyle Rodda (@Kyle_Rodda) December 11, 2023

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China has already dropped into deflation back in August, before prices rose again in September – but that recovery proved temporary, with prices also having dropped in October.

Zhang Zhiwei, chief economist at Pinpoint Asset Management, said deflationary pressures have increased because of weak domestic demand, adding:

“This highlights the importance of more supportive fiscal policy.”

In another sign of deflation, China’s manufacturers are cutting prices too. China’s producer price index fell 3% year-on-year, compared with October’s 2.6% drop, which is the 14th decline in a row.

The data, released last weekend, has knocked stocks today. China’s CSI 300 index, which tracks stocks on the Shanghai and Shenzen exchanges, fell as much as 1.4% today.

China’s CSI 300
China’s CSI 300 over the last five years Photograph: Refinitiv

But the economic picture may be brightening in the UK, after a troubled year.

Manufacturing body MakeUK has reported a pick-up in business confidence.

And encouragingly, manufacturers reported that export orders surpassed domestic orders for the first time in four years. That suggests that companies are taking advantage of either faster growing or new markets.

Fhaheen Khan, senior economist at Make UK, said:

“After the economic and political shocks of the last few years there is some semblance of stability returning for manufacturers.

While growth is not exactly supercharged, the positive announcements in the Autumn statement can at least allow companies to plan with more certainty without having to constantly fight fires.”

Passenger numbers at Heathrow are creeping closer to their levels before Covid-19 disrupted the travel sector.

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Passenger numbers at the UK’s largest airport were just 2% below pre-pandemic levels last month, with 6.1 million passengers using its terminals in November.

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That’s only slightly below the 6.2m in November 2019, and 10% more than a year ago – but below the 6.9 million who used Heathrow in October.

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Demand for flights to North America peaked before Thanksgiving, with more than 50,000 passengers flying across the Atlantic from Heathrow on November 17, the last Friday before the holiday.

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Diwali celebrations also sparked a surge in travel to India.

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Heathrow CEO Thomas Woldbye said:

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“For so many, holidays and cultural festivities are all about spending quality time with friends and family. Last month saw passengers travelling to celebrate Thanksgiving and Diwali with their loved ones, and we are making final preparations for the Christmas getaway.

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Heathrow predicts that passenger numbers will be strong in December, with departure numbers predicted to peak in the week before Christmas Day.

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It emerged yesterday that Saudi Arabia could take effective majority control of Heathrow, with other investors considering selling their stakes.

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Here’s some expert reaction to Rightmove’s report that UK house asking prices have dropped nearly 2% month-on-month.

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Tom Bill, head of UK residential research at estate agent Knight Frank, says politics is the major source of uncertainty in the property market:

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“It’s not often that November is busier than September in the UK property market but it was this year. The economic backdrop has stabilised in recent weeks and gentle downwards pressure on mortgage rates means that transaction volumes should be higher over the next six months than the last six.

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The main uncertainty facing the property market has gone from ‘when will the bank rate peak?’ to ‘when will the general election take place?’”

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Victoria Scholar, head of investment at interactive investor says Rightmove’s report, predicting a 1% drop in prices in 2024, are a reality check:

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December is typically a slow time of the year for housing transactions amid the Christmas celebrations and school holidays. However, this year, the fall was above average, highlighting the strain from higher mortgage rates, a weak consumer and broader cost-of-living pressures that are deterring individuals and families from buying a property.

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While the latest data from Halifax and Nationwide painted a rosier picture, Rightmove’s figures are a reality check, showing how ‘higher for longer’ interest rates continue to dampen demand for property transactions.”

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Jeremy Leaf, north London estate agent, says the drop in asking prices shows that sellers are showing realism to attract buyers.

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Leaf adds:

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‘Asking prices are not values but often an agent’s aspirational starting point to marketing. Overall, sales agreed are down as transactions are inevitably taking longer bearing in mind weaker demand and higher base rates. However, recent reductions in mortgage rates, and inflation not rising quite as rapidly, has given the market a bit of a kick when needed.

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‘Looking forward, the Christmas period is likely to be quieter at least until Boxing day which is always a great time for attracting interest on the portals and although much interest is aspirational, we always find plenty of genuine interest too.’

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The UK’s housing market is also undergoing a bout of deflation.

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Rightmove has reported that the average asking price of a UK home tumbled by nearly £7,000 in December, to £355,177, a drop of 1.9%.

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Rightmove also reports that average asking prices set by new sellers are 1.1% lower than a year ago, with the number of sales agreed this year around 13% lower than the same period in “the more frenetic” 2022.

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Prices in seven out of 11 regions are higher than a year ago, Rightmove reports, adding:

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The North West leads the way, up by 1.5% compared to last year, while the South East is the worst performer at 3.7% below 2022.

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Here’s the full story:

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Tim Bannister Rightmove’s Director of Property Science, has said:

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“2023 has been an interesting year, with very little straight forward, yet far from the negative market it might have been given the broader economy.

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Whilst there has been a lower transaction level than the previous few years and some adjustment in values, attractively priced property is selling. Very prime coastal property has held firm and sold well and sensible sellers who are realistic about guide prices are achieving positive results. There is less risk taking and the fluctuation of mortgage rates has made it a bumpy road for some, but as we turn towards 2024, we are hopeful that activity will continue despite a general election.

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Our advice to both buyers and sellers is to be realistic with expectations, it is potentially an easier market for buyers in prime areas with more choice and less pressure. Vendors; get organized, take early interest seriously and above all pitch values at an attractive level from the outset.”

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Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

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While most of the advanced world is struggling with inflation, China has the opposite problem.

“,”elementId”:”f1cf73ce-ed70-4fcc-973a-4241e0a99e3e”},{“_type”:”model.dotcomrendering.pageElements.TextBlockElement”,”html”:”

The world’s second-largest economy has dropped further into deflation territory, with consumer prices falling last month, new data released last weekend shows.

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China’s consumer price index (CPI) dropped 0.5% on a monthly basis in November, showing that prices of a basket of goods and services fell compared with October.

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CPI was also 0.5% lower on an annual basis, China’s National Bureau of Statistics (NBS) reported, which is the steepest drop since November 2020.

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The drops have disappointed investors, as they indicate rising deflationary pressures as domestic demand remains subdued.

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Kyle Rodda, senior financial market analyst at capital.com, says:

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Chinese stocks have sunk as investors digest the weekend’s disappointing price data. Deflation is deepening, and while debate rages about why, the trend is undeniable: consumer prices are falling, and producer prices have been negative for more than a year. The data simultaneously indicates anaemic demand and the eroding profitability of Chinese companies.

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The latest pledges of deeper fiscal support from last week’s Politburo meeting have amounted to little and may be considered insufficient to spark the economy out of this rut.

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China stocks testing 12-month lows. Crisp. pic.twitter.com/60a6YjJQM6

— Kyle Rodda (@Kyle_Rodda) December 11, 2023

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China has already dropped into deflation back in August, before prices rose again in September – but that recovery proved temporary, with prices also having dropped in October.

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Zhang Zhiwei, chief economist at Pinpoint Asset Management, said deflationary pressures have increased because of weak domestic demand, adding:

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“This highlights the importance of more supportive fiscal policy.”

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In another sign of deflation, China’s manufacturers are cutting prices too. China’s producer price index fell 3% year-on-year, compared with October’s 2.6% drop, which is the 14th decline in a row.

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The data, released last weekend, has knocked stocks today. China’s CSI 300 index, which tracks stocks on the Shanghai and Shenzen exchanges, fell as much as 1.4% today.

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