Marketmind: Reading inflation tea leaves from India, Japan

By Jamie McGeever

(Reuters) – A look at the day ahead in Asian markets.

Inflation data from India and Japan dominate the Asian calendar on Tuesday, with investors expecting contradictory signals – a significant cooling in Japanese wholesale inflation, and the first rise in Indian consumer inflation since July.

These indicators come just hours ahead of the latest reading of U.S. CPI inflation, and a few days after figures from Beijing showed that China’s slide into deflation accelerated at a surprisingly fast rate in November.

China’s yuan slid to a three-week low against the dollar on the back of that news, and Japan’s yen fell sharply on Monday after a media report citing sources said Bank of Japan officials are in no rush to scrap negative interest rates this month as they have not seen enough evidence of persistent wage growth.

Their patience will be justified if the consensus forecast for Tuesday’s wholesale inflation report is borne out. Economists expect annual wholesale inflation to slump to 0.1% from 0.8% in October.

That would be the lowest since February 2021, and a remarkable reversal from above 10% just over a year ago.

Annual consumer price inflation in India, meanwhile, is seen rising to 5.7% in November from 4.87% in October on the back of higher food prices, which would be the first increase since July and further above the central bank’s target of 4%.

As 2023 draws to a close, disinflationary forces across the Asia & Pacific region are mostly intensifying although, with headline inflation still above target in many countries, central banks are in no hurry to cut interest rates.

The Reserve Bank of Australia is one. It delivered a ‘hawkish pause’ on interest rates earlier this month, and rates traders are only pricing in one quarter percentage point rate cut next year. And not until the fourth quarter too.

RBA Governor Michele Bowman speaks on Tuesday morning and investors – and the Aussie dollar – will be keen to see if she maintains that hawkish stance, or if it softens at all.

Investor sentiment was pretty neutral on Monday – U.S., Chinese and global stocks edged up but Asian stocks slipped, while bond yields and the dollar index were little changed on the day – but Japanese markets were more eye-catching.

The yen lost around 1% against most major currencies, and the Nikkei jumped 1.5%. Japanese markets have been on edge since investors interpreted remarks from BOJ governor Kazuo Ueda last week as paving the way for a more rapid exit from ultra-loose monetary policy.

Part of that reversed on Monday. What’s in store Tuesday?

Elsewhere, U.S. Commerce Secretary Gina Raimondo told Reuters on Monday that the Biden administration is in discussions with Nvidia about sales of some artificial intelligence chips to China but not its most advanced semiconductors.

Here are key developments that could provide more direction to markets on Tuesday:

– India CPI inflation (November)

– Japan wholesale inflation (November)

– RBA governor Michele Bullock speaks

(By Jamie McGeever; Editing by Deepa Babington)