China inflation up next, geopolitics in focus- Dec 9

Prospect of further interest rate cuts from the U.S. Federal Reserve and falling Treasury bond yields, combined with solid U.S. employment figures on Friday, delivered yet another record high on Wall Street.

Global FX volatility may be on the rise, but measures of U.S. equity and bond market volatility are the lowest in months. As long as that remains the case, Wall Street seems set to end a remarkable year on a firm footing.

Investors in Asia on Monday have their first opportunity to react to Friday’s U.S. non-farm payrolls report which showed solid job growth but an uptick in the unemployment rate last month.

Rates traders appeared to have put more weight on the unemployment rate – they now fully expect a quarter point rate cut from the Fed on Dec. 18, and priced in an extra 10 bps of easing over the course of next year.

The main data focus on Monday in Asia will be consumer and producer price inflation from China. The pace of monthly consumer deflation is expected to have accelerated to -0.4% from -0.3%, and this would be the deepest rate of month-on-month price declines since March. Annual inflation is seen rising to 0.5% from 0.3%.

Producer prices, however, are expected to remain deep in deflationary territory with factory gate prices falling at an annual rate of 2.8% in November, little changed from October’s 2.9% fall.

Investors will also now be looking ahead to China’s upcoming Politburo meeting, where Beijing’s top policymakers will set out their priorities for the coming year. For investors, the government’s 2025 growth target and budget will be two of the most important.

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