Marketmind: Knocking on CPI’s door

By Stephen Culp

(Reuters) – A look at the day ahead in Asian markets from Stephen Culp.

Asian markets could be in for a bumpy ride on Tuesday after a rocky U.S. session for stocks, as a lack of market moving catalysts and remarks from a Fed official helped take the air out of earlier gains.

Risk appetite has bounced between U.S. economic resiliency and signs of cooling inflation and fears that the central bank will keep restrictive policy rates in place for longer than many might have hoped, potentially tipping the world’s largest economy into recession.

As for the world’s second-largest economy, Beijing’s reversal of its zero-COVID policy resulted in tourists flowing into mainland China for the first time in years, sparking optimism of demand recovery, which in turn gave a boost to crude prices, and sent benchmark U.S. Treasury yields lower.

While China’s reopening has resulted in spiking COVID infections, recent talks with Pfizer over securing a license to produce a generic version of its COVID drug has eased fears of another shutdown. Economists at many big banks are revising up their GDP growth forecasts for the second half of this year.

China’s yuan on Monday touched a near-five-month high against the greenback.

Consumer prices data coming from Japan on Tuesday and from the United States and China later in the week will offer further evidence regarding the extent to which global inflation has peaked – or not.

Further signs of cooling inflation could raise the possibility of a pause in monetary policy.

On Monday, Atlanta Fed President Raphael Bostic provided assurances that it will be “appropriate and important” for the Fed to exercise caution as it calibrates its war on inflation.

Here’s a look at various U.S. inflation indicators, and how far most of them have to fall before approaching the Fed’s average annual 2% interest target:

Data from the Federal Reserve on Monday showed outstanding consumer credit grew in November by more than analysts expected, underscoring the strength of the American consumer and adding to the possibility of the fabled “soft landing.”

Some developments that could move markets on Tuesday are as follows:

– Federal Reserve Chair Jerome Powell is due to participate in a “Central Bank Independence” panel in Stockholm, Sweden, which will include a Q&A session

– Japan releases its CPI report for December, which is expected to show core annual inflation of 3.8%, hotter than the previous month’s 3.6% reading

(Reporting by Stephen Culp; Editing by Lisa Shumaker)