ima_daily5min

Inflation without reflation: Energy prices reversed in June, core CPI sluggish, fiscal fine-tuning rather than pivot (Morgan Stanley)

2026-07-14·ima-daily5min-0714-23-1d196df768

Street Signal | Inflation without reflation: Energy prices reversed in June, core CPI sluggish, fiscal fine-tuning rather than pivot (Morgan Stanley)

Morgan Stanley released a presentation report for Asia-Pacific investors, pointing out that the current economy has an anomaly of "inflation without reflation." Energy prices and transmission effects reversed in June. Core CPI excluding gold remained sluggish, downstream profit margins were under pressure, and consumer confidence was weak.

The report believes that fiscal policy will focus on budget implementation rather than expansion. There will be about 2 trillion yuan of fiscal pulse space in the second half of the year. However, the resilience of exports has reduced the urgency of additional countercyclical easing, and monetary policy will remain on hold.

The report believes that it is difficult to narrow the imbalance between supply and demand through smarter industrial policies alone. Investment is shifting from areas with overcapacity to areas with insufficient supply. Policies such as a unified national market are in the right direction, but implementation faces challenges.

The final recommendation is to promote deep reforms in social security, cadre assessment, and financial systems, and improve the offshore RMB ecology. One-sentence conclusion: China's economy is showing "quasi-deflationary" pressure, and traditional aggregate stimulus policies are difficult to address.

The focus of reform is shifting to structural optimization on the supply side and long-term institutional reform on the demand side. The short-term market will remain volatile. Positive/negative: Negative for China's cyclical large-cap stocks (such as real estate, cement), but supportive of high-dividend, low-volatility assets.

The market's previous expectations for large-scale stimulus policies may have been too high and are currently being revised. The current performance of the stock market has partly reflected expectations of a moderate economic recovery. Catalysts:

1) The Political Bureau meeting at the end of July to see whether its specific wording on finance and reform exceeds market expectations;

2) CPI, PPI and social financing data in July and August to verify whether the economy is stabilizing or slowing down further;

3) Policy promotion related to RMB internationalization and offshore product innovation.

Full text

Inflation without reflation: Energy prices reversed in June, core CPI sluggish, fiscal fine-tuning rather than pivot (Morgan Stanley)

Morgan Stanley released a presentation report for Asia-Pacific investors, pointing out that the current economy has an anomaly of "inflation without reflation." Energy prices and transmission effects reversed in June. Core CPI excluding gold remained sluggish, downstream profit margins were under pressure, and consumer confidence was weak. The report believes that fiscal policy will focus on budget implementation rather than expansion. There will be about 2 trillion yuan of fiscal pulse space in the second half of the year. However, the resilience of exports has reduced the urgency of additional countercyclical easing, and monetary policy will remain on hold. The report believes that it is difficult to narrow the imbalance between supply and demand through smarter industrial policies alone. Investment is shifting from areas with overcapacity to areas with insufficient supply. Policies such as a unified national market are in the right direction, but implementation faces challenges. The final recommendation is to promote deep reforms in social security, cadre assessment, and financial systems, and improve the offshore RMB ecology. One-sentence conclusion: China's economy is showing "quasi-deflationary" pressure, and traditional aggregate stimulus policies are difficult to address. The focus of reform is shifting to structural optimization on the supply side and long-term institutional reform on the demand side. The short-term market will remain volatile. Positive/negative: Negative for China's cyclical large-cap stocks (such as real estate, cement), but supportive of high-dividend, low-volatility assets. The market's previous expectations for large-scale stimulus policies may have been too high and are currently being revised. The current performance of the stock market has partly reflected expectations of a moderate economic recovery. Catalysts: 1) The Political Bureau meeting at the end of July to see whether its specific wording on finance and reform exceeds market expectations; 2) CPI, PPI and social financing data in July and August to verify whether the economy is stabilizing or slowing down further; 3) Policy promotion related to RMB internationalization and offshore product innovation.

← Back to archive