Galaxy Securities: China’s July PPI Likely to Mark a Near-Term Peak

Galaxy Securities said it expects China’s July producer price index (PPI) year-on-year reading to be a near-term high, citing easing support from the petrochemical chain as crude oil prices return close to pre-conflict levels and upstream price gains failing to pass through to downstream demand, according to Jiemian News. The brokerage said the PPI-CPI gap is still widening, suggesting weak transmission to end demand and limited ability for companies to pass costs on to consumers. It flagged three factors to watch: U.S.-Iran geopolitical developments and their impact on global oil prices; knock-on effects from El Niño on commodities such as sugar, wheat, rubber and palm oil and on China’s thermal coal prices via hydropower output and thermal power demand; and the strength of China’s domestic policy support, noting China’s central bank monetary policy committee’s second-quarter meeting referenced “structural divergence” and that the July Politburo meeting may push for faster implementation of existing policy tools to stabilize domestic demand.