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US Economic Data Signals Hawkish Fed Rate Path
US economic indicators also influenced risk sentiment. Nonfarm payrolls and US consumer sentiment fell short of expectations. However, a lower unemployment rate and rising inflation expectations sank expectations for an H1 2025 Fed rate cut.
The US unemployment rate dropped from 4.1% in December to 4.0% in January, while the Michigan Inflation Expectations Index surged to 4.3% in February, up from 3.3% in January.
Tighter labor market conditions may bolster wage growth and consumer spending, fueling demand-driven inflation. A higher inflation outlook could bring forward consumer spending plans, adding further upward pressure on inflation.
China Inflation Accelerates, Signaling Stronger Domestic Demand
On Sunday, February 9, China’s inflation numbers set the tone for the Hong Kong and Mainland China markets. The annual inflation rate rose to 0.5% in January, up from 0.1% in December. The upswing in consumer prices suggested a pickup in domestic demand, potentially fueled by recent stimulus measures.
East Asia Econ, a research service, dismissed the possibility that the Chinese New Year skewed the data, stating:
China – core CPI back up to +2%. January core CPI picked up. That doesn’t look like a Chinese New Year effect, and comes after Q4 when prices were already looking firmer. This doesn’t mean inflation, but if core, which has underperformed other price indicators, is now catching up, it would mean China isn’t in underlying deflation.”
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