Marketmind: Is China exporting deflation?

A look at the day ahead in European and global markets from Tom Westbrook

Factory-gate prices stopped falling in China last month, but did not rise and in annual terms remain negative – a welcome piece of news on Thursday for Western central bankers who are starting to run into difficulty in heading off sticky inflation.

Relief wasn’t immediate, as the figures were tinged by doubt on the robustness of China’s consumption rebound, with inflation in the country also at its slowest in a year.

But with several months’ data now published since the end of China’s restrictive zero-COVID-19 stance, there’s some weight behind analysts’ contention that the reopening of the world’s second-biggest economy won’t set off a new inflationary pulse.

Unemployment and the lack of stimulus handouts are widely expected to keep the temperature of local demand in check, while a global slowdown is also likely to cool price pressure on exports.

That’s likely welcomed since analysts are making their latest upward revisions to U.S. and European interest rate expectations and do not need another inflationary shock from China’s reopening.

European futures steadied in Asia as markets assumed a holding pattern with the focus on U.S. data as the driver of interest rate movement.

As some of the dust settles on U.S. Federal Reserve Chairman Jerome Powell’s hawkish testimony at Congress, Fed funds futures steadied, perhaps a signal economists – who have been jacking interest rate forecasts toward a peak near 5.75% or 6% – may finally have done enough.

U.S. jobless claims data later on Thursday offers an entree for a blockbuster jobs report on Friday that could make or break market pricing for a 50-basis-point Fed hike later in March.

The Bank of Japan concludes a two-day meeting on Friday, though it is increasingly dancing to its own beat.

A falling yen is among signs that efforts to deter short-sellers in the bond market are working and speculation for a policy shift at what will be Governor Haruhiko Kuroda’s final meeting in charge seems to have ebbed from earlier fever-pitch levels.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.3%; Japanese stocks rose 0.6% on Thursday.

The race to raise rates, https://www.reuters.com/graphics/GLOBAL-MARKETS/klvygnlbyvg/chart.png

Key developments that could influence markets on Thursday:

Economics: U.S. jobless claims

Speakers: Riksbank officials AinoBunge and Per Jansson, Bank of England’s Sarah Breeden, Bank of Canada’s Carolyn Rogers

(Reporting by Tom Westbrook; Editing by Christopher Cushing)