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Futures Spooked By Hottest Chinese Factory Inflation Since 2018

US equity future struggled for direction after hitting an all time high of 4,102 as investors assessed economic growth prospects against renewed inflation concerns after Beijing reported that in March China experienced the fastest factory inflation since 2018, which weighed on Asian stocks, and dragged contracts on the duration-heavy Nasdaq 100 lower, despite Fed Chair Jerome Powell reiterating late on Thursday that inflation was not a worry. Emini futures were steady after the S&P 500 rose 0.42% to a record high on Thursday when the Nasdaq Composite added 1.03%. Treasury yields rose, as did the dollar, while oil was flat and the VIX dropped to its lowest level since Feb 2020 at 16.55.

“U.S. equities are holding on to recent highs with U.S. interest rates remaining stable and the economic outlook improving,” Steen Jakobsen, chief investment officer at Saxo Bank A/S, said in a client note. “We do not expect wild things in today’s trading session as everyone is waiting for the first-quarter earnings season to start next week.”

The big overnight event was the latest Chinese CPI and PPI prints, which both came in hot for March, as China’s CPI inflation picked up to +0.4% yoy in March after two months of deflation, primarily on higher fuel costs; in month-on-month terms, headline CPI prices increased 3.0%.In year-on-year terms, food inflation moderated to -0.7% yoy in March from -0.2% yoy in February, primarily on lower inflation in vegetable and pork prices. Deflation in pork prices widened to -18.4% yoy in March from -14.9% yoy in February primarily on a sequential decline, and inflation in fresh vegetables moderated to +0.2% yoy in March from +3.3% yoy in February. In contrast, non-food CPI inflation picked up to +0.7% yoy in March from -0.2% yoy in February, primarily on a significant rebound in fuel costs. Fuel costs increased notably by 11.5% yoy in March, from -5.2% yoy in February. Core CPI inflation (headline CPI excluding food and energy) increased mildly as well to +0.3% yoy in March from 0% yoy in February.

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