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Inflation and tariffs dominate the market scenario
By Jamie McGeever
(Reuters) – A look at the day ahead in Asian markets.
Inflation data from the world’s three largest economies – China, the United States and the euro zone – set the tone for world markets this week, and Asia kicks off on Monday, following the April figures released in Beijing at weekend.
The general market scenario on Monday is expected to be positive, with a cut in US interest rates in September back, Wall Street revisiting recent peaks, European indices at new highs and China and Hong Kong pushing Asian stock markets up.
Add in oil prices falling to two-month lows and a stable dollar pushing down currency market volatility, and financial conditions are becoming broadly more flexible.
But much of this may be offset by news that the Biden administration will announce new Chinese tariffs on strategic sectors, including a large increase in taxes on electric vehicles.
The full announcement, expected on Tuesday, will maintain existing tariffs on many Chinese products set by former President Donald Trump, and will also add new tariffs on semiconductors and solar equipment.
As Morgan Stanley analysts note, the inflationary impact of an escalating tariff war between the US and China will fray nerves in global government bond markets. In fact, sentiment across markets will likely be negatively affected.
Figures released on Saturday showed that consumer price inflation in China last month was slightly stronger than expected, but producer deflation deepened, an indication that pressures on pipeline prices remain firmly in place. in the descending direction.
Also on Saturday, figures showed that new bank loans in China fell more than expected in April, while broad credit growth hit an all-time low, underlining how slow the economic recovery is and the need for more action from from Beijing to accelerate it.
US and eurozone inflation readings for April will be released on Wednesday and Friday respectively, which investors hope will provide a clearer picture of the future path of interest rates in the coming months.
Before that, investors in Asia also took Indian inflation into account. Economists consulted by Reuters expect a slight cooling to 4.8%, compared to 4.9% in March, which would be the lowest level since June last year.
Although global inflation has moderated recently, food prices, which represent almost half of the consumer price index basket, have remained high, squeezing household budgets.
Inflation is expected to return to the Reserve Bank of India’s 4% target next quarter, also when the central bank is expected to cut rates, according to a Reuters poll.
But growth is holding up well and the RBI may want to wait for the Fed to cut rates before acting, so as not to weaken the rupee, which is languishing at historic lows against the dollar. Money markets estimate a second-quarter rate cut of around 50-50.
The story continues
Here are key developments that could provide further guidance to markets on Monday:
– India CPI Inflation (April)
– Japan money supply (April)
– Business confidence in Australia (April)
(Reporting and writing by Jamie McGeever; Editing by Josie Kao)