- Lower Chinese inflation eases tightening risk from PBoC.
- Alcoa reports better-than-expected earnings on higher sales.
- Another quiet day ahead in terms of data releases.
Chinese inflation came in lower than expected in March, slowing to 2.1% y/y from 3.1% in February driven by a substantial drop in food price inflation. It was expected that food prices would decline as they were boosted by the Lunar New Year in February, but consensus was for a smaller drop in overall inflation to 2.4%. This eases some of the pressure on China’s central bank and gives it room to step back on its liquidity-tightening measures.
Asian equity markets were cheered by the Chinese inflation numbers; the Hang Seng is up 0.9% at the time of writing. U.S. equities also had a good day yesterday, and the S&P 500 closed 0.6% higher. The positive sentiment in equities was supported by better-than-expected Q1 earnings results from the world’s largest aluminium producer, Alcoa. Yesterday, Alcoa reported better-than-expected earnings despite lower sales revenue.
In European bond markets, Portuguese bonds underperformed after the high-court ruling over the weekend, but only modestly, suggesting that markets are not excessively worried about Portugal. In the US, 10-year treasury yields moved slightly higher after the significant drop Friday, but remain close to the lows from last summer.
In FX markets, the EUR/USD has continued to move higher as markets are scaling back expectations of a Fed exit from QE this year. The JPY has strengthened slightly after the substantial weakening over the past three days. The combination of less tightening risk from China and the strong result from Alcoa also lifted commodity prices overnight.
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