China's post-pandemic recovery is faltering with a stream of disappointing data, although some recent releases had shown that maybe the situation stabilizes. Although still suppressed, factory activity expanded in September for the first time since the first quarter, as manufacturing PMI printed 50.2. Industrial production had strengthened to 4.5% y/y in August and retail sales had risen to 4.6% y/y, in an encouraging sign around the health of the consumer.
However, today's report poured cold water on the recent optimism, revealing that the world's second largest economy stayed at the verge of deflation in September. CPI inflation was non-existent at 0.0% y/y, backtracking from the previous month's uptick. Wholesale prices meanwhile remained in negative territory with the -2.5% print, even though deflationary pressures eased for third straight month.
The release does not reflect October's Golden Week holiday, which will likely offer a boom to domestic consumption and can help lift economic activity and the travel industry. Chinese travel provider Trip.com said that outbound travel demand "surged by over eight times" during the eight-day holiday, compared to the same period last year. 
Markets meanwhile continue to monitor the downtrend in the important real estate sector, as Country Garden failed to make a debt repayment of HK 470 million (around 60 million USD) at the start of the week. The firm said its sales and financing are still facing "significant challenges" and the development could lead to a debt restructuring process. 
Chinese authorities have taken measures to support the ailing property market, boost domestic consumption and other initiatives to help the economic recovery, but have not embraced big stimulus. Further monetary accommodation would have a negative impact on the already weak currency, while bold fiscal action could imperil the country's credit ratings.
HKG33 extends yesterday's slide, weighed by the poor inflation report and remains in risk of new 2023 lows (17,064-16,977), although fresh catalyst may be required for that. On the other hand, the index made a strong start to the week and may get the chance to push higher. However, the upside continues to look hostile and Beijing's current piecemeal approach is not enough to support a sustained recovery for the index.
Investors now await a series of economic releases form China next week, for the next leg of the move, including Q3 GDP.
Senior Financial Editorial Writer
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.
With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.
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