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China avoids deflation in 2025 as inflation edges higher, easing still likelyECB vice-presidential hopeful Centeno flags “structural uncertainty” facing EuropeGoldman says NFP unlikely to shift April Fed cut unless data sharply surprisesChina curbs rare-earth exports to Japan, Tokyo raises concerns with G7 and USChina inflation hits near three-year high, but producer deflation signals weak demandChina December 2025 CPI +0.8% y/y (vs. 0.9% expected, prior of 0.7%)PBOC sets USD/ CNY reference rate for today at 7.0128 (vs. estimate at 6.9832)Sterling gains look premature as banks warn on UK-EU reset and weak UK growthGoldman sees lower but attractive 2026 equity returns: AI shift to adoption, credit cappedJapan household spending rebounds while real wages still lag, complicates BOJ outlookDATA: Japan Household Spending November 2025: +2.9% y/y (vs expected -0.9%, prior -3.0%)Musk says China to dominate AI compute as Beijing plays down chips, touts power advantageGoldman survey shows investors turn sharply bearish on oil as supply glut buildsHSBC lifts long-term gold forecasts but trims 2026 average, sees $5,000 upside riskinvestingLive Americas market wrap: Big US trade balance surprise boosts GDP estimatesTrump proposes $200bn mortgage-bond buying plan to cut US home loan ratesUS equity close: Energy leads the way while memory chip names give back the big rallyAt a glance:Trump floated direct MBS purchases, blurring fiscal and monetary linesUSD firm near-term, USD/JPY pushed above 157.25Japan data strong on spending but real wages still fallingChina CPI improved, but deflation risks persistMarkets cautious ahead of US NFP and tariff rulingLate in the US afternoon, Donald Trump delivered a headline-grabbing moment, announcing he had instructed representatives to buy $200bn in mortgage-backed securities, effectively proposing a form of QE-by-presidential directive. Trump framed the move as an effort to narrow mortgage spreads and reduce borrowing costs in order to restore housing affordability.While labelled as “QE” in market shorthand, buying MBS via government channels is more accurately fiscal policy, and the announcement reinforces expectations that policy will skew increasingly populist as the US moves deeper into the 2026 election cycle. With Trump’s approval ratings under pressure, further fiscally expansive initiatives look likely in coming months, a dynamic that should ultimately weigh on the US dollar.But not today.The USD remained firm, particularly against the yen, with USD/JPY pushing above 157.25. That move came despite stronger Japanese data showing household spending rose 2.9% y/y in November, far exceeding expectations, and surged 6.2% m/m. The data points to near-term resilience in consumption, though the broader picture remains fragile, with real wages still falling 2.8% y/y, continuing to erode purchasing power.What appeared to weigh more heavily on the yen was renewed concern over China’s restriction of rare-earth and magnet exports to Japan, escalating a dispute linked to Taiwan-related comments. Japanese officials voiced strong concern and said the issue would be raised with G7 partners and US counterparts, adding a geopolitical risk premium to JPY trading.Elsewhere, major FX pairs were relatively subdued as markets positioned cautiously ahead of US non-farm payrolls, due Friday at 13:30 GMT / 08:30 ET.In China, inflation data showed CPI rose 0.8% y/y in December, the fastest pace since early 2023, lifting full-year (2025) inflation to 0.0% and allowing Beijing to avoid outright deflation. However, PPI fell 1.9% y/y, extending factory-gate deflation and reinforcing the view that underlying domestic demand remains weak, keeping expectations for further policy support alive.On geopolitics, Trump told the New York Times that Taiwan is “up to” Xi Jinping, while adding he would be “very unhappy” if Beijing moved against the island, comments unlikely to calm regional nerves.Asia-Pacific equities are mostly higher, though gains are capped as investors await US payrolls data and a looming US Supreme Court ruling on tariffs.
Asia-Pac
stocks:Japan
(Nikkei 225) +1.3%Hong
Kong (Hang Seng) +0.03%
Shanghai
Composite +0.3%Australia
(S&P/ASX 200) -0.13%
This article was written by Eamonn Sheridan at investinglive.com.
💡 DMK Insight
China’s inflation hitting a near three-year high is a game changer for global markets. This uptick signals potential shifts in monetary policy, not just in China but also in the U.S. and Europe. Traders should be on high alert as inflationary pressures could lead to tighter monetary conditions, affecting everything from forex pairs to commodities. If China continues to see rising prices, it could prompt the PBOC to adjust its easing measures, which would ripple through global markets, particularly impacting currencies like the yuan and related commodities like rare earths. Watch for how the ECB and Fed respond; any signs of a coordinated tightening could send shockwaves through risk assets. On the flip side, if inflation proves transitory, we might see a continuation of the current easing stance, which could support equities in the short term. Keep an eye on key inflation reports and central bank communications in the coming weeks, as they will be crucial for positioning ahead of potential market volatility.
📮 Takeaway
Monitor China’s inflation data closely; a sustained rise could trigger shifts in global monetary policy, impacting forex and commodity markets significantly.
