Navigating Through Chinese Stimulus Hopes and Inflation Jitters

After an initial rally in the first half hour the ASX drifted off over the day as investor nerves over inflation data weighed down the market. Cyclicals in mining and energy were the main driver of the rally as Chinese stimulus hopes ran high. Reserve Bank governor Philip Lowe says the central bank is “deadly serious” about getting inflation back to target and will become more aggressive if it looks like it is not achieving its goal. This statement didn’t help the market, although it is widely speculated that Gov Lowe will not be renewed in his role later this year. Hong Kong-listed Chinese stocks also advanced, as Chinese state media reported that Beijing is likely to roll out more stimulus measures to support a slowing economic recovery. Still, gains in Asian markets were limited ahead of key U.S. consumer price index (CPI) inflation data due later in the day. While overall inflation is expected to have retreated, core CPI inflation is expected to remain sticky, which in turn is expected to invite more rate hikes by the Fed in the near-term.