Chinese Inflation Drives Domestic Stocks Lower

Speculation that China may have to tighten its economic policy is pulling investor sentiment lower this morning. Amid positive data on industrial production and retail sales, Chinese CPI climbed 2.7% in February, indicating that the central bank may have to take a more serious approach to slow down spending.

“China is aiming for 3% inflation for all of 2010,” said Benjamin Reitzes from BMO. “Continued acceleration would make that target tough to hit and markets are concerned that this latest jump in inflation could cause Chinese officials to tighten policy further.”

Reitzes called the CPI figure “somewhat troubling,” adding that it’s too early to a definitive statement that prices are about to take off.

“However, with the economic numbers showing nothing but strength, and lending remaining solid, some monetary policy tightening should be expected throughout the year,” he added. “Look for further reserve requirement hikes in the near term, and interest rate hikes and potential yuan appreciation likely starting by mid-year.”

75 minutes before the opening bell, markets are heading for a lower open. Dow futures are down 15 points higher to 10,555 and futures on the S&P 500 are off 3.25 points to 1,142.50. 

Meantime, the dollar is slightly weaker, WTI crude oil is up 6 cents to $82.15 per barrel, and Spot Gold is trading $2.82 lower at $1,105.60.

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