More Stimulus for China

German PPI registered the sharpest annual drop in almost six years in November, pulled lower by the decline in energy prices. The producer price index fell -2.50% year over year in November, which was substantially worse than the -2.30% contraction recorded in the previous month. Producer prices have been falling steadily since August 2013. The data indicates that there is hardly any upward pressure on consumer prices from the production side. Energy prices once again had the largest imapct on producer prices according to the Federal Statistical Office. Energy prices alone plunged -7.10% in November from a year ago, largely due to cheaper prices of petroleum products that slumped by -14.70%. On a monthly basis, producer prices dropped -0.20% in November, continuing the previous month's further decline of -0.40%.  The German DAX 30 remains under pressure as concerns about the outlook linger alongside worrisome fundamentals.

China's annual Central Economic Work Conference ended on Monday with wide agreement amongst policymakers that the nation’s monetary policy measures need to be increasingly flexible and likely require a wider budget deficit to accommodate the economy. Slowing expansion has raise the specter of increased stimulus measures either through further interest rate adjustments, reserve ratio requirements, or fiscal stimulus. The Chinese Government has concluded that the best choice moving forward is raising the country's fiscal deficit ratio gradually and destocking its housing industry. Despite all the efforts from the PBOC and the current level of fiscal stimulus, China has not yet shown any meaningful signs of a growth revival. Having already cut interest rates six times since late 2014, the Central Bank might be looking additional rate cuts and a possible expansion of quantitative easing in the coming year.