HomeContributorsFundamental AnalysisThe Chinese Numbers Add To The Global Reflation Case

The Chinese Numbers Add To The Global Reflation Case

Market movers today

The main event today will be Fed Chairman Janet Yellen’s semi-annual testimony before the Senate Banking Committee. Focus will be on any hints regarding the timing of the next hike. We look for a June hike but the risk is still skewed towards an earlier hike. The Fed’s Robert Kaplan (voter, dove) yesterday said that ‘it is my view that moving sooner rather than later will make it more likely that future removals of accommodation can be done gradually’.

German GDP is due to be released this morning. We look for a stronger-than-consensus rise of 0.7% q/q (consensus 0.5% q/q). It also points to upside risk to consensus of 0.5% q/q for euro area GDP. Strong surveys suggest that euro area growth finished 2016 on a strong note. German ZEW was strong in January but we look for a small decline in February in line with the recent drop in the German ifo expectations index.

In the US, it is time for NFIB small business optimism, which rose sharply last month – most likely due to upbeat expectations about deregulation and tax cuts. We might see a small setback as there are not yet any details on the tax plan. US producer prices are also up today.

Nothing in Scandi today.

Selected market news

Stock markets finished higher again yesterday but Asian markets are a bit lower after news that the national security adviser Michael Flynn resigned due to contacts with Russia earlier, see Reuters. The USD has weakened slightly on the news.

Treasury Secretary Steven Mnuchin was sworn in yesterday, paving the way for an announcement soon on tax reform. Not least, news on a corporate tax cut is much awaited by markets.

Chinese inflation numbers surprised strongly on the upside as producer prices (PPI) rose to a new cycle high of 6.9% y/y (consensus 6.5% y/y, previous 5.5% y/y). CPI inflation was also higher than expected at 2.5% y/y (consensus 2.4% y/y, previous 2.1% y/y) driven by an increase in the core inflation (excludes food) which moved up to 2.5% y/y from 2.0% y/y. It’s still below the 3% target but has a clear trend upwards. Today’s numbers increase the likelihood of further tightening from the PBoC as economic data also looks robust currently. An increase in the official lending rate can no longer be ruled out. So far, the PBoC has tightened mainly through a small lift to repo rates in money markets and ordering banks to restrain lending in Q1. But official policy rates have not been touched.

The Chinese numbers add to the global reflation case. In addition, a more moderate Trump on the foreign political scene has also dampened the risk of a trade war for now and triggered further increases in commodity prices, adding more fuel to reflation.

Danske Bank
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