Chinese inflation drops to 4.1% in December, 0.1% above market expectations

Chinese inflation dropped to 4.1% in December, a 15 month low and just above the official CPI target of 4% (although the average over the past 12 months is 5.4%).

Markets in Asia were supported by investor expectations that this will enable the Chinese authorities to loosen monetary policy (a recent poll by Reuters showed that analysts expect a 200 basis point cut in rates over 2012). However, a government economist has been reported as suggesting that inflation is likely to rebound in January and that a large policy loosening is unlikely.

The National Bureau of Statistics is due to publish GDP data on 17th January.

Click here for a preview of other high impact market data affecting oil and cotton markets this week.

Morning Market’s: CRUDE 113 +0.35%; COTTON 96.92 +0.02%; BDI -5.17%

Although crude prices fell in the wake of higher than expected crude stocks in the US, crude prices rose in Asian trading on increased geopolitical risks in Iran and Syria and strikes in Nigeria.

Cotton prices edged higher during Asian trading ahead of a report on Thursday from the US DOE that could point to tighter cotton supplies than expected.

The Baltic Dry Index continues to decline. The BDI may fall further following the force majeure announcement from Vale on 2 million tonnes of iron ore shipments.

CRUDE 113.59 +0.26%; COTTON 97.01 +0.05%; BDI 1258 -3.82%

Brent crude rose in Asian trading on increased fears that Iran will disrupt oil supplies in the Strait of Hormuz, contributing to a risk premium of $4-$5 per barrel according to some market commentators. Further moves in the oil price are likely to be driven by noise out of Brussels and Washington surrounding the extent of any sanctions imposed against Iran. Watch out for the EIA’s release of US crude inventories today at 3.30pm GMT. A survey by Bloomberg suggests crude inventories are likely to show a 1 million barrel increase.

Cotton prices continued to increase driven higher by fears over India’s cotton crop to the highest settlement price since mid-November. Prices fell to $0.85/lb in mid-December and since then have increased by 14%.

The BDI continued to decline yesterday on post Christmas/New Year slow down in demand.