CPI Shows Consumption Green Shoots, U.S.-China Officials Meet In London

Key News

Asian equities started the week on a strong note as Hong Kong and South Korea outperformed, while Australia was closed for the King’s Birthday and Indonesia and Pakistan were closed for Eid al-Adha.

Both Hong Kong and Mainland China opened higher and continued to gain throughout the session. Trading volumes in Hong Kong were robust, with growth and technology stocks leading the advance, while coal and precious metals underperformed.

A few notable developments:

• U.S.-China Trade Talks: U.S. Treasury Secretary Scott Bessent, Commerce Secretary Howard Lutnick, and U.S. Trade Representative Jamieson Greer met with Vice Premier He Lifeng in London. The discussions focused on China’s export controls on rare earth elements and U.S. export controls on semiconductors. U.S. President Donald Trump commented, “the meeting should go very well.” This follows last week’s phone call between Trump and Chinese President Xi Jinping, where both agreed to meet, though no date has been set.
• Inflation Data: May’s Consumer Price Index in China fell -0.1% year-over-year, compared to April’s -0.2% and expectations of -0.2%. The decline was primarily due to a -1.7% month-over-month drop in energy prices, which accounted for 70% of the decrease. However, there were signs of resilient domestic demand, with hotel accommodation prices up 4.6%, tourism prices up 0.8%, and new clothing prices up 0.6%. Despite consistently negative Western headlines, the data suggest the situation is not as dire as often portrayed.
• Producer Prices: May’s Producer Price Index dropped -3.2% year-over-year, in line with expectations and April’s -2.7%. Declines were broad-based across oil, natural gas, coal, refined oil products, and chemical raw materials.
• Trade Data: May exports rose 4.8% year-over-year, below April’s 8.1% but ahead of expectations for 6%. Exports declined slightly month-over-month, with exports to ASEAN at $27.13 billion, the European Union at $26.62 billion, and the United States at $18.01 billion. Imports fell 3.4% year-over-year, compared to April’s -0.2% and consensus of -0.8%. For the third consecutive month, imports from Japan exceeded those from the United States. Month-over-month, commodity import tonnage declined in every category except soybeans, which doubled. The trade surplus widened to $103.22 billion, above April’s $96.18 billion and expectations of $101.1 billion.
• Auto Sector: May sales of electric vehicles and hybrid cars increased 28% year-over-year and 12.1% month-over-month to 1.021 million units. Total auto sales rose 13.3% year-over-year and +10.1% month-over-month to 1.932 million units, with EVs and hybrids accounting for 52.9% of total sales.
• Policy Developments: After the market close, Premier Li Qiang and the State Council reviewed a study on scientific and technological innovation. Premier Li emphasized the need to accelerate these efforts. Additionally, the CPC Central Committee and State Council released guidance on improving living standards, with a focus on enhancing social security equity, supporting low-income groups, and improving basic public services, particularly in education and healthcare.
• Market Movers: Hong Kong’s rally was led by internet stocks, with Meituan up +4.73%, JD.com up +4.12%, Trip.com up +4.88%, and Alibaba up +2.32%. The auto sector was mixed, as BYD fell -1.59% and Geely Auto dropped -2.12% amid ongoing price war concerns, though Geely stated it would not build new factories. Apple’s Worldwide Developers Conference 2025 began, but expectations were muted. In Mainland China, Shenzhen-listed growth stocks outperformed, while banks and liquor stocks weighed on Shanghai. Healthcare stocks continued to outperform in both markets.

Overall, Asian markets are showing signs of renewed momentum, with growth and technology sectors leading the way, and policy support continuing to provide a backstop. As always, knocking on wood.

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Last Night’s Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 7.18 versus 7.19 Friday
• CNY per EUR 8.19 versus 8.19 Friday
• Yield on 10-Year Government Bond 1.66% versus 1.65% Friday
• Yield on 10-Year China Development Bank Bond 1.70% versus 1.70% Friday
• Copper Price -0.18%
• Steel Price -0.20%