Expectations that the price of oil will reach $80 per barrel in 2024

After showing more signs of contraction in the world’s second-largest economy, Chinese stocks fell on Monday, with its main index touching the lowest level in nearly five years.

Consumer prices fell at the fastest pace in three years in November, as the Consumer Price Index fell by 0.5 percent in November, compared to last year, which is the largest decline since November 2020, according to data issued by the National Bureau of Statistics on Saturday. This was worse than expected, as analysts polled by Reuters expected a decline of 0.1 percent.

The decline also represents an acceleration from October, when the consumer price index fell 0.2 percent from a year earlier, and sparked calls for urgent action from Beijing to boost demand and prevent a decline in prices.

The data comes days after policymakers pledged to boost fiscal and monetary support to boost the faltering economy. China faces weak prices for most of this year due to a decline in the real estate market and a decline in consumer confidence.

Consumer price inflation has slowed since February, falling into negative territory in July for the first time in more than two years. It returned to positive territory in August, was flat in September, but fell back below zero in October.

Citi analysts said in a report issued on Sunday: “The deflation situation in China is worsening with the triple blow of domestic food prices, global oil price corrections, and weak domestic demand.”

Stocks decline amid deflation fears

Chinese stocks fell on Monday, after more signs of deflation appeared in the country. The Hang Seng Index in Hong Kong fell by 2 percent and the Chinese CSI 300 Index fell by 1.4 percent. The Shanghai Composite Index also decreased by 0.6 percent, and the Hang Seng Index of Chinese companies decreased by 2.6 percent.

Real estate and consumer goods stocks fell more than 2 percent each, while new energy stocks lost 1.7 percent. Shares of technology giants listed in Hong Kong also fell by 2.6 percent, and shares of mainland development companies listed in the city fell by 3 percent.

Other Asian stocks also fell ahead of a week full of central bank meetings and inflation data in the United States.

The Chinese yuan continues to decline

The Chinese yuan fell to its lowest levels in three weeks against the strong dollar on Monday, as signs of deflation raised investor doubts about the resilience of the world’s second-largest economy and weighed on the currency. However, traders and analysts said losses were limited due to the central bank’s continued support through daily stabilization, indicating a strong bias.

Before the market opened, the People’s Bank of China set the midpoint rate, around which the yuan is allowed to trade in a 2 percent band, at 7.1163 per dollar, 40 points weaker than the previous fixation of 7.1123. It continued its months-long trend of setting daily guidance at levels stronger than market expectations, with traders and analysts interpreting this as an official attempt to maintain currency stability.

In the spot market, the local yuan opened at 7.1718 to the dollar and fell to a low of 7.1888 at one point, the lowest level since November 20.

Currency traders said the downbeat inflation data hurt market sentiment, and investors are now awaiting more guidance from the upcoming Central Economic Work Conference after the Politburo meeting in December. Analysts at Barclays said: “Markets will look for further signals on next year’s GDP target and policy directions at the annual meeting, although the official growth target will not be revealed until the National People’s Congress in March.”

Standard grain production

On the other hand, data from the Chinese National Bureau of Statistics showed that grain production in China this year reached a new record level. The office said in a statement on Monday that agricultural grain production during the current year increased by 1.3 percent annually to 695.41 million tons, which is less than the expectations of the Chinese Ministry of Agriculture and Rural Affairs.

Last October, the ministry stated that it expected the total grain production in China during the current year to reach more than 650 million tons, with production increasing in the fall season. The Ministry indicated that most grain-growing areas in the fall season recorded favorable weather conditions, despite the occurrence of some natural disasters in a number of them. Experts and officials attributed the production growth to the increase in cultivated areas and improved productivity, especially for basic crops such as corn and soybeans.