There are signs that the China gloom may be lifting, even if only temporarily. Equities have rebounded from five-year lows, and official figures on Sunday showed that tourism revenues in the Lunar New Year holidays beat pre-COVID levels.
The data will offer relief to policymakers battling slowing growth, deflation risks, weak consumer demand and a property sector collapse, although the sustainability of the tourism boost remains uncertain.
China’s central bank on Sunday left a key policy rate unchanged as expected when rolling over maturing medium-term loans, an indication that benchmark loan prime rates will also be kept on hold later this week.
Beijing is striking a delicate balancing act to support the economy at a time when signs of persistent deflationary pressure call for more stimulus. But aggressive easing risks reviving depreciation pressure on the yuan and capital outflows.
Surprisingly hot U.S. producer and consumer price inflation figures last week pushed up Treasury yields, strengthened the dollar and raised doubts on how much the Fed will cut rates this year. Is a second wave of inflation forming?
This general tightening of financial conditions could temper any optimism in Asian market trading on Monday. Goldman Sachs’s emerging market financial conditions index last week touched its highest level in three months.
