China Stocks Fall on CPI Data, Politburo Outcome: Markets Wrap

(Bloomberg) — Chinese stocks dropped, dragging down Asian equities, following worse-than-expected inflation data on the weekend and some disappointment over a Politburo meeting.

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China’s benchmark equity index slid as much as 1.6% after the data published Saturday showed consumer prices fell at the steepest pace in three years. Some market participants may be disappointed as China’s regulators dropped the “forceful” wording when describing monetary policy for 2024, according to Bloomberg Intelligence. The dollar rose against most of its major peers.

Moves were muted in the rest of the region as traders looked ahead to an event heavy week that features US inflation data on Tuesday, a Federal Reserve policy decision Wednesday and retail sales numbers Thursday.

“China’s deflation situation is deepening with the triple whammy from domestic food prices, international oil price corrections and weak domestic demand,” Citigroup economists led by Xinyu Ji wrote in a note to clients. “There is no time for policy hesitation to prevent a vicious loop between deflation, confidence and activities” and there’s rising risk of an imminent reserve-requirement ratio and/or rate cuts, they wrote.

China’s top leaders pledged to strengthen fiscal support and emphasized the importance of economic “progress” at a meeting Friday, the official Xinhua News Agency reported. The Politburo also declared that monetary policy should be flexible, appropriate, targeted and effective, with the previous wording “forceful” dropped from the statement.

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

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Japan’s benchmark stock indexes jumped at least 1% as Australian shares also gained following a rally in US equities Friday. Futures contracts for US shares were little changed in Asia. Treasury 10-year yields held at 4.24%.

Avoiding Recession

The S&P 500 capped a sixth week of gains Friday, its longest winning run since November 2019, after solid payroll data backed speculation the world’s largest economy will be able to avoid a recession. Swap contracts now show a 40% probability the Fed will cut rates in March, down from more than 50% prior to the economic data.

Softening US inflation and employment data in the past month have convinced investors that the Fed is done raising rates and ignited bets that cuts of at least 125 basis points were in store over the next 12 months. Traders scaled back those wagers to about 110 basis points of easing after the nonfarm payrolls data.

“People saying recession need to have their heads examined,” Neil Dutta at Renaissance Macro Research said on Friday.

Read More: Decisive Moment Arrives With $4 Trillion Stocks Rally at Stake

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

Oil held gains from Friday when it rallied on the US jobs report and plans to refill the Strategic Petroleum Reserve, but still closed out the longest weekly losing streak since late 2018 amid concern about an impending global glut.

Key events this week:

• Argentina new President Javier Milei expected to call congress into extraordinary session, Monday

• UK’s CBI publishes latest economic forecast, Monday

• RBA Governor Michele Bullock speaks, Tuesday

• Japan producer prices, Tuesday

• India inflation, Tuesday

• Brazil inflation, Tuesday

• UK unemployment, Tuesday

• US inflation, Tuesday

• Eurozone industrial production, Wednesday

• Brazil rate decision, Wednesday

• Federal Reserve rate decision, Wednesday

• Australian unemployment, Thursday

• ECB rate decision, Thursday

• BOE rate decision, Thursday

• Norway rate decision, Thursday

• US retail sales, Thursday

• China 1-year MLF, Friday

• China retail sales, industrial production and jobless rate, Friday

• Eurozone PMIs, Friday

• UK manufacturing PMI, Friday

Some of the main moves in markets:

Stocks

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

• Nikkei 225 futures (OSE) rose 1.4%

• Japan’s Topix rose 1.4%

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

• Hong Kong’s Hang Seng fell 2.2%

• The Shanghai Composite fell 0.7%

• Euro Stoxx 50 futures were unchanged

Currencies

• The Bloomberg Dollar Spot Index was little changed

• The euro was little changed at $1.0767

• The Japanese yen fell 0.3% to 145.36 per dollar

• The offshore yuan fell 0.1% to 7.1974 per dollar

Cryptocurrencies

• Bitcoin fell 3.7% to $42,181.07

• Ether fell 5.2% to $2,238.05

Bonds

• The yield on 10-year Treasuries advanced one basis point to 4.24%

• Japan’s 10-year yield advanced two basis points to 0.790%

• Australia’s 10-year yield advanced four basis points to 4.33%

Commodities

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

• Spot gold fell 0.2% to $1,999.70 an ounce

This story was produced with the assistance of Bloomberg Automation.

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