Investors turn focus to FOMC minutes and US inflation this week

China’s markets returned on Monday after being closed for a week in observance of the Lunar New Year holiday.

Chinese shares tumbled on the first trading of the Chinese new year as investors factored in Chinese economic data released this morning that deepened perceptions of a sluggish domestic economy. China’s exports declined 11.2% from a year earlier in U.S. dollar terms in January, compared with a 1.4% drop in December.

Japan was also in focus this morning as the preliminary reading on Q3 GDP was due. Japan’s economy contracted at an annualized rate of 1.4 percent in the fourth quarter of 2015, data showed earlier today. This was caused by a sharp drop in consumption. Expectations were for a 0.8 per cent contraction. It was the biggest drop since a 2.8 per cent contraction in the September of 2014, that saw the economy dip into recession again. GDP fell 0.4 per cent quarter-on-quarter, seasonally adjusted, in Q3 compared to the consensus for a 0.2% contraction after a 0.3% expansion in Q3.

Meanwhile the on Wednesday, focus will turn to the minutes of the Federal Open Market Committee’s January meeting that will hopefully give investors more insight into the trajectory of the US economy. The FOMC decided to keep interest rates unchanged last month as it said it was monitoring the volatility in financial markets and developments in overseas economies. The minutes will offer more details on that thought process.

US inflation data will also be closely watched this week as the Fed is closely watching for signs of price pressure as it determines whether to raise rates at its meeting in March.

Economists expect falling energy and food prices to have weighed on inflation last month. Consumer price inflation is expected to decline 0.1 per cent in January from the previous month, when it slid 0.1 per cent per cent.
Meanwhile core consumer prices, which strip out more volatile items like food and energy are expected to rise 0.2 per cent from December and rise 2.1 per cent from the year ago period.

Another important event this week is the EU Summit. Policymakers from 28 members of the European Union gather in Brussels for a two-day summit on Thursday. The refugee crisis and Britian’s EU membership are expected to be on the agenda.

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