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Markets Monitor Chinese Inflation Data and Weaker Dollar

US stocks are grinding higher while Treasuries are fluctuating close to unchanged as markets reacted to Chinese inflation data and a weaker dollar.  China’s benchmark Shanghai Composite Index rallied over 1.5% after data showed Chinese producer prices increased for the first time since September 2013.  Producer prices remained in deflationary territory, but the data shows the trend is starting to reverse.  Consumer prices increased 2.3% in March, narrowly missing the 2.4% economists were predicting.  Food prices, which made up 1/3 of the CPI calculation in 2015, jumped 7.6% in March.  Rising food costs remain a problem for the PBoC.  With deflationary pressures still remaining at the wholesale level, additional stimulus may be warranted, but the Chinese central bank must also monitor the increases in costs for its citizens.  Chinese economic data will remain in focus this week with GDP, industrial production, retail sales, and fixed asset investment also scheduled for release on Friday. 

Blackrock and the IMF both expressed conflicting views on the merits of the negative interest rate policies being implemented by some foreign central banks (notably the ECB and BoJ).  The IMF defended the practice given the “significant risks” of slow growth facing the global economy.  Three top officials at the IMF concluded that although the concept of negative rates is relatively new, they believe the practice helps “deliver additional monetary stimulus and easier financial conditions”, which should support stronger economic growth.  The IMF’s comments come ahead of this week’s spring meetings of the IMF and World Bank, where the fund is widely expected to cut its global growth forecast.  Blackrock CEO Larry Fink took a harsher view of the practice.  Fink believes negative rates punish savers, which may force them to cut spending in order to prepare for retirement.  A reduction in consumer spending would undermine the economic growth that central banks are trying to spur.  Fink also warned that negative rates encourage investors to reach for yield via less liquid asset classes with increased levels of risk, which could create other problems (asset bubbles) down the road.  Over the weekend in Barron’s, Bill Gross also suggested that U.S. rates need to be normalized sooner rather than later.
There are no significant economic releases today.  Scheduled Fed speakers include NY Fed President Dudley (dovish, permanent voter) and Dallas Fed President Kaplan (hawkish, non-voter).  All three major US stock indexes are up close to 0.50%, while Treasury yields and swap rates are flat to 2 bps higher across all major maturities.

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