Inflation unsettling markets

Inflation and the possible responses to it are what’s impacting markets today. It started in China when Q4 GDP was released with a 9.8% y/o/y gain, above expectations of 9.4%. Also, CPI rose 4.6% y/o/y (in line with yesterday’s story), PPI rose 5.9% vs the est of 5.7% and IP and Retail Sales were also above forecasts. The Shanghai index fell 3% to a 4 month low and is now 15% off its recent high in Nov proving that a strong economy and a rising stock market are not always correlated if inflation and higher interest rates are a consequence of the strong growth. German PPI rose 5.3%, the fastest pace since Oct ’08 and above estimates of 4.9% and Hong Kong CPI was up 3.1%, the most since Jan ’09 vs the forecast of 3%. Brazil raised interest rates 50 bps last night as expected to 11.25% in response to rising inflation pressures. Key in the Philly Fed survey today will be not only Prices Paid but also Prices Received to see what’s been passed thru.

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