China CPI data rattles markets, more China data this week, BoE also in focus

The market focus at the start of the new trading week was on Chinese stocks again. China’s inflation data failed to reassure investors after December CPI rose 1.6% year-over-year in data released on the weekend. It matched the consensus estimate and was slightly higher than the 1.5% y/y November reading. The PPI was down 5.9% y/y in a sign that inflation pressures remain on the downside.

The rest of the week sees the Bank of England policy decision on Thursday, which will attract investors’ attention. It is unlikely that the Bank will shift to tighter policy at this meeting.

Also on Thursday we get further details on the ECB’s views on the outlook for growth and inflation with the release of minutes from the December meeting. The ECB cut its deposit rate further into negative territory and extended the quantitative easing programme at the meeting. ECB Chief Mario Draghi also suggested that further tweaks to the QE programme would be made in the future if necessary, details of which may become clearer with the minutes.

Another data point that will be important to watch will be December trade data for China due on Wednesday. A deterioration in the overall economic situation is expected to hit trade further. Exports in November were down almost 7 per cent compared with November 2014. Analysts expect exports in December to have contracted by 11 per cent as conditions worsen. Weak commodity prices are expected to still weigh heavily on imports, which fell 9 per cent year-on-year in November and analysts expect imports to have fallen 11 per cent year-on-year in December.

Finally on Friday we will get US retail sales for December as well as US industrial production figures. The headline retail sales number is expected to grow 0.1 per cent month on month, compared with growth of 0.2 per cent in November. Industrial production is expected to be down a further 0.2 per cent from November.

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