China’s Economic Outlook: Xi Jinping Meets US Business Chiefs for Profit Insights

On Wednesday, the Asian and Pacific economic calendar will be influenced by Chinese industrial profits and Australian inflation figures, occurring amid relatively stable global equity markets and a growing appetite for risk ahead of key U.S. inflation data later in the week.

In Beijing, Chinese President Xi Jinping is scheduled to meet with U.S. business leaders, following up on his November dinner with U.S. investors in San Francisco. This meeting comes after Chinese Premier Li Qiang did not meet with visiting foreign CEOs at the China Development Forum in Beijing, raising concerns over transparency in China’s economy and worsening economic ties with the United States. However, Xi’s engagement with business leaders could signal his commitment to promoting an open business environment in China and improving Sino-U.S. relations, or at least preventing further deterioration.

China’s economy and markets could benefit from positive developments, as Chinese stocks are on track to post their first quarterly gain in four quarters. However, this gain is largely attributed to a strong rebound from five-year lows in February, which has since waned, with Chinese stocks barely up for the month of March. Consequently, Asian stocks have been held back, with the MSCI Asia ex-Japan index showing only a 1% increase this year, significantly trailing behind the MSCI World and MSCI global emerging market indices.

Wednesday’s economic indicators will provide insights into China’s industrial firms’ profitability for January and February. Industrial profits experienced a 2.3% decline in 2023, marking their second consecutive yearly decrease. However, there were signs of improvement towards the end of last year, with profits rising by 16.8% in December compared to the previous year, extending gains for a fifth consecutive month.

Additionally, Australian consumer inflation figures for February are expected to show a slight increase in the annual rate to 3.5% from 3.4% in January. Despite this, Australian rates traders do not anticipate the Reserve Bank of Australia to commence rate cuts until September, with only 40 basis points of easing priced in for this year.

Meanwhile, the Japanese yen remains close to lows not observed since 1990. Japanese officials are intensifying verbal intervention efforts, with Finance Minister Shunichi Suzuki cautioning against rapid currency movements. However, this has not translated into significant upside for the yen. Potential appreciation may depend on a substantial decline in U.S. yields and rate expectations, which may occur following the U.S. PCE inflation report on Friday. Conversely, a hotter-than-expected report could lead to a swift decline in the yen, possibly breaching the 152 per dollar mark and prompting action from Tokyo.

Key developments expected to shape market direction on Wednesday include China’s industrial profits for January and February, President Xi Jinping’s meeting with U.S. business leaders, and Australia’s consumer inflation figures for February.