Consumer price inflation data from China for February 2024 shows an exit from deflation

CPI +0.7% y/y

• expected +0.3%, prior -0.8% (that -0.8% in January was the sharpest the steepest fall in more than 14 years)
• for the m/m, comes in at +1.0% (prior +0.3%)
• first rise in the CPI since August of 2023
• core CPI +1.2% y/y (prior +0.4%)

PPI -2.7% y/y

• expected -2.5%, prior -2.5%
• for the m/m, comes in at -0.2%

Thats a very large jump in CPI from -0.8% y/y in January to +0.7% in February. Its not as if the yuan collapsed, which would ramp up the price of imports.

ADDED – China National Bureau of Statistics (NBS) on the CPIrise:

• „It was primarily food and service prices that rose more“
• „During the Spring Festival period, consumer demand for food products grew, in addition to rainy and snowy weather in some regions affecting supply“

—

Well, that ends the ‚deflation narrative‘ in China. This is welcome news, deflation weighs on the economy in multiple ways:

• When prices are falling, consumers may delay purchases in anticipation of even lower prices in the future. This reduction in spending can lead to decreased demand for goods and services, slowing down economic growth.
• Deflation increases the real value of debt, making it more expensive for borrowers to repay loans. This can lead to higher default rates and can stress financial institutions. Individuals and businesses may cut back on spending and investment as a result.
• As prices fall, revenues for companies decrease, but many of their costs (like loans, leases, and salaries) do not adjust downward as quickly. This can lead to lower profits, cutbacks in production, and layoffs, further contributing to the economic downturn.
• Wages tend to be sticky downwards, meaning they do not easily decrease even when there is deflation. This can lead to higher labor costs relative to revenues for businesses, forcing them to reduce their workforce or halt hiring.
• With falling prices, the return on investments can be lower than expected, or even negative. This can lead to a reduction in investments by businesses in areas like research and development, new projects, or expansion.
• The most dangerous aspect of deflation is the risk of a deflationary spiral. This occurs when falling prices lead to lower production, leading to higher unemployment, leading to lower demand, and thus further declines in prices. This vicious cycle can be very difficult to break and can lead to long-term economic stagnation.

This article was written by Eamonn Sheridan at www.forexlive.com.

• US February non-farm payrolls +275K vs +200K expected
• Canada February employment change 40.7K versus 20.0K estimate
• ECB sources report: Policymakers ‚overwhelmingly‘ favor June for first rate cut
• Fed’s Williams: Inflation expectations have come down quite a bit
• US Baker Hughes weekly oil rig count -2
• New York Fed Nowcast of Q1 GDP growth rises to 2.14% from 2.12% previously
• Canada Q4 capacity utilization rate 78.7% versus 79.7% last quarter

Markets:

• Gold up $18 to $2177
• US 10-year yields down 1.3 bps to 4.08%
• WTI crude oil down $1.07 to $77.86
• S&P 500 down 33 points, or 0.6%, to 5123
• JPY leads, CAD lags

I’m always leery of a pre-NFP front run and today is an example of why. The US dollar was soft and bonds bid for 24 hours before the report. When the data rolled out it was dovish. Yes, the headline beat but unemployment rose, revisions were much lower and wage growth was surprisingly soft. The initial reaction was for more USD selling but that was the extreme of the day. In the hours that followed the dollar weakness slowly reversed, with the help of a weak stock market.

The euro climbed up to 1.0980 on the NFP headlines but slowly slid back to 1.0930, which is slightly before the data was released. It didn’t get any help from the leak saying that only a few ECB members want to cut in April.

The pound was more resilient as it finished up 50 pips on the day but still gave back 50 pips from the highs in what could have been its strongest day since December. Still, it’s the best close of the year for the pond and breaks months of consolidation. That will be something to watch in the week ahead.

USD/JPY continues to be sold on BOJ hike speculation. That will be a key topic next week ahead of the March 19 decision as the leaks continue to roll in.

USD/CAD was a tough trade today. The Canadian jobs report was strong but so much is being driven by population growth that the market isn’t impressed. Later as the risk trade and oil stumbled, so did the loonie, erasing all the jobs moves and more.

Gold hit another all-time high but as it neared $2200, some aggressive selling hit. The turn in gold coincided with heavy profit taking in some high-flying stocks, particularly chipmakers with NVDA falling to $875 at the close from a record high of $974.

This article was written by Adam Button at www.forexlive.com.

Not today.

The major indices are closing lower, and also lower for the week. The declines come after both S&P and NASDAQ indices reached new all-time high intraday levels.

The final numbers are showing:

• Dow industrial average -68.68 points or -0.18% at 38722.70
• S&P index -33.67 points or -0.65% at 5123.68
• NASDAQ index -188.27 points or -1.16% at 16085.10.

The small-cap Russell 2000 also fell by -2.02 point or -0.10% at 2082.71

For the trading week

• Dow industrial average, -0.93%
• S&P index, -0.26%
• NASDAQ index, -1.17%

The Russell 2000 was the only positive with a gain of 0.304%

Nvidia fears extended close to the $1000 level reaching $974 before reversing sharply to the downside in closing at $875.35. The low for the day reached down to $865.06 for a huge range of close to $110.

Conversely Apple shares snapped a seven day decline with a gain of $1.75 or 1.04% to $170.70.

Other losers today included:

• Super Micro Computers -1.73%
• Palo Alto Networks -2.23%
• Dell -3.53%
• Meta -1.22%
• ARM holdings -6.65%
• Broadcom, -6.99%
• Intel -4.66%
• Crowdstrike -2.07%
• Costco -7.64%
• Micron -1.37%
• Taiwan Semiconductor , -1.90%

This article was written by Greg Michalowski at www.forexlive.com.

The oil market isn’t quite sure what it wants to do. This week, OPEC extended its production cut, the Saudis raised prices and US inventories tightened. But that wasn’t enough to get oil through $80 as it tried on Monday, Wednesday and today. Despite touching above $80 on a couple days, it failed to close above and never even matched last week’s intraday high of $80.85.

That’s not a great sign for crude, though the seasonals are still positive for March and April so there’s room for optimism. It pulled back to $77.84 today after failing at $79.99 so there are clearly technical players involved. We will see if signals from the physical market next week can re-assert themselves. Otherwise, a fall below $77.50 could be trouble.

This article was written by Adam Button at www.forexlive.com.

As the Friday trading day winds down, what are the key technical levels in play for the GBPUSD heading into the new trading week.

In the video above, I outline what to watch for technically in the trading week starting March 11.

This article was written by Greg Michalowski at www.forexlive.com.