China CPI Report: More Deflation On The Way?

The Chinese CPI inflation report for the month of January is the financial data release that stands out from the crowd for the rest of this week. While Chinese authorities seem to intervene from time to time to support the country’s stock markets, economists will scrutinise the report as the country’s economy has entered a deflationary spiral.

China CPI January 2024

The National Bureau of Statistics (NBS) will publish its January inflation report on Thursday. Market analysts suggest that CPI inflation dropped by 0.5%, on an annualised basis, in the first month of the year.

Chinese policymakers vowed to strengthen fiscal and monetary support to boost the economy, which is struggling with a real-estate crisis, high youth unemployment and dropping consumer confidence. Chinese stock market trade near multi-year lows while financial authorities seem to intervene to bolster the yuan against the US dollar as economists have suggested it has happened several times in the last month.

ECB's Schnabel: Patience Is Key For ECB Rates

ECB executive board member, Isabel Schnabel, told Financial Times reporters that the governing board should be cautious regarding any policy adjustments, emphasizing patience that could mitigate the risk of a potential inflation flare up. In her remarks, she mentioned that the ECB has made substantial progress on inflation, but still hasn’t reached its set target.

Schnabel, who is considered one of the ECB’s council “hawks”, stressed that sticky inflation figures in the services sector have been recorded while the eurozone’s labour market has been quite resilient despite monetary policy tightening. Commenting on economic forecasts, she said that she has observed a loosening of financial conditions as markets aggressively priced in rate cuts.

Reuters Poll Forecasts Emerging Market Currencies Weak Rebound

The majority of economists polled by Reuters forecast that “almost all emerging market currencies were expected to barely recoup year-to-date losses six months from now.” While most emerging market currencies ended last year with gains, the US dollar has strengthened again on the back of rate cut expectations pushbacks.

Currency strategists at Societe Generale told Reuters reporters that “the rally we had been anticipating especially out of currencies and rates has already materialized. Emerging market currencies are relatively very fairly priced...and we're not expecting for them to appreciate much. The Fed rate cuts are already well priced and the consequences of U.S. exceptionalism are still unfolding and that's going to have positive implications for the dollar index and negative implications for EM currencies."

Commerzbank Analysts Stress US Dollar Strength At The Moment

Economists at Commerzbank wrote in a report that the euro has little to offer against the US dollar as the US currency consolidates its gains in the last few weeks. However, they suggest that the dollar’s surge may have come close to a peak.

In their note, they mention that “the question is when will the Dollar run out of steam? It probably won't be too long before a bottom is formed. One thing is also clear: the monthly rates of change in inflation have been at levels consistent with the 2% target for several months now. So it should not take too many more months of good data before the Fed starts to cut rates, no matter how cautious officials sound at the moment. This does not mean that we will see significantly higher EUR/USD levels in the near future.”

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