Chinese stocks fall on CPI data, Politburo results: Markets wrap

(Bloomberg) — Chinese stocks fell, dragging Asian shares lower, after worse-than-expected inflation data over the weekend and some disappointment over the Politburo meeting.

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China’s main stock index fell as much as 1.6% after data published on Saturday showed consumer prices falling at the largest pace in three years. Some market participants may be disappointed that regulators in China dropped the “strong” language when describing monetary policy for 2024, according to Bloomberg Intelligence. The dollar rose against most of its major counterparts.

Moves were weak in the rest of the region as traders look forward to an eventful week that includes US inflation data on Tuesday, the Federal Reserve’s policy decision on Wednesday and retail sales figures on Thursday.

“China’s deflation situation is worsening with the triple whammy caused by domestic food prices, global oil price corrections, and weak domestic demand,” Citigroup economists led by Xinyu Jie wrote in a note to clients. “There is no time for policy hesitation to prevent a vicious cycle between deflation, confidence and activity,” they wrote, and there is a growing risk of an impending reserve requirement ratio and/or interest rate cuts.

China’s top leaders pledged to boost financial support and stressed the importance of economic “progress” at a meeting on Friday, Xinhua news agency reported. The Politburo also declared that monetary policy should be flexible, appropriate, purposeful and effective, dropping the previous phrase “strong” from the statement.

“The tone of monetary and fiscal policy is more conservative than before. This means that the level of monetary policy easing in 2024 may not be as significant as in 2023,” said Wheeler Chen, senior analyst at Forsyth Barr Asia Ltd. “

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Japanese stock indexes jumped at least 1%, with Australian stocks also rising after US stocks rose on Friday. US stock futures were little changed in Asia. 10-year Treasury yields reach 4.24%

Avoid stagnation

The S&P 500 capped a sixth week of gains on Friday, its longest winning streak since November 2019, after strong payrolls data supported speculation that the world’s largest economy will be able to avoid a recession. Swaps now show a 40% probability that the Fed will cut interest rates in March, down from more than 50% before the economic data.

Weak US inflation and employment data last month had convinced investors that the Fed was done raising interest rates and sparked bets that cuts of at least 125 basis points were in store over the next 12 months. Traders trimmed those bets to about 110 basis points of easing after the non-farm payrolls data.

“People who say there is a recession need to get their heads examined,” Neil Dutta of Renaissance Macro Research said on Friday.

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This week, traders will also be watching policy decisions at the European Central Bank and the Bank of England, while jobs data in Australia and measures of economic activity in Europe are also due.

Oil maintained its gains since Friday when it rose on the back of the US jobs report and plans to refill the Strategic Petroleum Reserve, but closed its longest weekly losing streak since late 2018 amid concerns about an impending global glut.

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Main events this week:

  • New Argentine President Javier Miley is expected to call Congress into a special session on Monday

  • The UK’s CBI publishes its latest economic forecasts on Monday

  • Reserve Bank of Australia Governor Michelle Bullock speaks on Tuesday

  • Producer prices in Japan, Tuesday

  • Inflation in India, Tuesday

  • Inflation in Brazil on Tuesday

  • Unemployment in the UK, Tuesday

  • Inflation in the United States, Tuesday

  • Industrial production in the eurozone, Wednesday

  • Interest rate decision in Brazil, Wednesday

  • Fed interest rate decision, Wednesday

  • Australian unemployment, Thursday

  • European Central Bank interest rate decision, Thursday

  • Interest rate decision from the Bank of England, Thursday

  • Interest rate decision in Norway, Thursday

  • US retail sales, Thursday

  • China 1 Year MLF, Friday

  • China’s retail sales, industrial production and unemployment rate, Friday

  • Eurozone PMIs, Friday

  • UK Manufacturing PMI, Friday

Some key movements in the markets:

Stores

  • S&P 500 futures were little changed as of 12:16 p.m. Tokyo time

  • Nikkei 225 futures rose 1.4%.

  • Japan’s Topix index rose 1.4%.

  • Australia’s S&P/ASX 200 index was little changed

  • The Hang Seng Index in Hong Kong fell by 2.2%.

  • The Shanghai Composite Index fell by 0.7%.

  • Euro Stoxx 50 futures were unchanged

Currencies

  • The Bloomberg Dollar Spot Index was little changed

  • There was little change in the euro at $1.0767

  • The Japanese yen fell 0.3 percent to 145.36 yen to the dollar

  • The yuan in external transactions fell 0.1 percent to 7.1974 per dollar

Digital currencies

  • Bitcoin fell 3.7% to $42,181.07

  • Ethereum fell 5.2% to $2,238.05

Bonds

  • The yield on 10-year Treasury bonds rose 1 basis point to 4.24%.

  • The yield on 10-year Japanese bonds rose two basis points to 0.790%.

  • The yield on Australian 10-year bonds rose four basis points to 4.33%.

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Goods

  • West Texas Intermediate crude rose 0.3% to $71.43 a barrel

  • Gold in spot transactions fell 0.2 percent to $1,999.70 per ounce

This story was produced with assistance from Bloomberg Automation.

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