Asian markets trade higher as China reports lower inflation number

Asian stocks were higher on hopes that China’s moderating inflation will open the door for more easing. The regional MSCI Asia Pacific Index was 0.5% higher in early morning Tokyo trading.

Optimisms around an orderly Greek debt swap deadline also proved positive for regional stocks.

The Australian dollar fell slightly on worse than expected trade figures but recovered to last trade at 1.0646 against the US dollar. The euro was firm at 1.3267 against the dollar while the Japanese yen weakened against the US dollar and was last buying 81.80.

All eyes were on Chinese inflation numbers. The annualised rate of inflation has fallen to 3.2%. The numbers are not only below the peak which we saw last year but perhaps more importantly they are below the official 4% target range which the People’s Bank of China (PBOC) targets, much like the 2-3% target range employed by the Reserve Bank of Australia.

The much lower inflation print in February, combined with flat producer price increases, opens the door for more monetary easing measures from the PBOC. The initial market reaction has not been large but we think the markets will start to price this in as a reality once measures are introduced, probably as early as late next week. The most likely initial step would be to further reduce reserve ratio requirements.

Traders will now shift focus to US jobs numbers. Consensus market estimates are for 210,000 new jobs to have been added in the world’s largest economy over the past month, with the unemployment rate expected to remain flat at 8.3%.

A strong jobs market suits the current government and we note this because the 2012 presidential election will be fought on the economy.