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Morning Bid: Are China's inflation, capital flows tides turning?
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Morning Bid: Are China's inflation, capital flows tides turning?
Mar 10, 2024 4:04 PM

(Reuters) - A look at the day ahead in Asian markets.

Signs of fatigue on Wall Street and mixed Chinese inflation data will set the tone for Asian markets on Monday, with growing expectations of a landmark policy change later this month from the Bank of Japan also likely to drive the Nikkei and yen. 

Asia's economic calendar is light, with only the final reading of fourth-quarter Japanese GDP on tap. A Reuters poll suggests the economy avoided a technical recession thanks to stronger-than-expected corporate spending on plants and equipment.

Inflation data from China on Saturday showed that consumer price inflation was notably higher than expected, but producer price deflation accelerated once again.

Annual consumer inflation rose to 0.7%, the highest in almost a year and a sign that the economy is reflating and the battle against deflation may be turning in policymakers' favor. 

But the producer price index fell 2.7% year-on-year, more than forecast and the 17th consecutive month that prices have declined on an annual basis. Pipeline price pressures remain negative.

Deflation is one of investors' biggest concerns over China. Bubbling U.S.-Sino trade tensions is another, and on Friday Bloomberg reported that Washington is weighing sanctions on several Chinese tech companies, including chipmaker ChangXin Memory Technologies, in a bid to further restrain China's development of advanced semiconductors.

Capital has flooded out of China for some time, but analysts at the Institute of International Finance say this tide may be turning - China posted its first equity inflow in six months in February and its largest in over a year.

Trading in the Japanese yen, meanwhile, is intensifying as the BOJ's March 18 to 19 policy meeting draws closer and speculation mounts that it will bring down the curtain on years of ultra-loose policy and negative interest rates.

The yen last week registered its best week since July, rising 2% against the dollar. On the other side of the dollar/yen exchange rate, traders now see the Fed cutting rates in June.

Dollar/yen could have more room to fall, if hedge funds and speculators continue to cover their short yen position, which was the largest in six years at the end of February. Data shows that funds trimmed this by around 10% in the week to March 5.

The global backdrop to the Asian open on Monday is mixed. On the one hand, signs are pointing to U.S. and euro zone rate cuts starting in June. But on the other, there are signs that the remarkable rally on Wall Street is running out of steam.

The S&P 500 and Nasdaq ended lower last week. It may have been only the third weekly decline in 19 for both, but it came despite a notable decline in Treasury yields and the dollar's biggest weekly loss this year.

Here are key developments that could provide more direction to markets on Monday:

- Japan GDP (Q4, final)

- Japan money supply (February)

- U.S. 3-year bond auction

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