FXStreet (Barcelona) - The Danske Bank Research Team previews the Chinese March inflation data release, and view that inflation will bottom out gradually, and rise to 2% by year-end, but still remain below the 3% target.

Key Quotes

“Chinese inflation for March was unchanged at 1.4% and thus still quite far from the government’s target for 2015 of 3% (upper limit). In Q1 inflation was on average 1.2% which is the lowest rate for a quarter in five years.”

“The low inflation is increasingly affecting monetary policy considerations and on top of weak growth is adding to the case for further stimulus.”

“Inflation is held down by falling commodity prices on energy, materials and food, and the trade weighted currency has also appreciated quite a bit as the CNY has appreciated in tandem with the USD versus both the euro and Asian currencies.”

“We expect inflation to be bottoming gradually but only rise to around 2% by the end of the year – still far below the 3% target.”

“Chinese offshore stocks at the Hong Kong exchange have seen significant gains this week of more than 10%. Money is moving from mainland China where equities have risen significantly more than the offshore market recently, leaving a premium of 35% on mainland stocks.”

“With valuation much more attractive in the offshore market now, Chinese investors are pouring investments into Hong Kong via the Stock Connect system.”