Markets rise on China and US inflation

Good data out of China last night and the highest inflation rate in 2 years in the US pushed pre-markets higher. The lack of a slowing Chinese economy does help with the global economic sentiment, but higher inflation will prompt the Fed to take action in raising rates. Inflation was one of the last excuses the Fed had to remain dovish on rate increases in the near and longer term. Should the rate keep going up it will force the hand of the Fed even in the face of slowing global growth.

There are some signs of a lack of demand in the economy that will be exacerbated when rates increase, and more importantly, when longer term rate expectations start to increase and the longer end of the curve prices this in. One of the only causes of the rising markets could be the decline in the dollar whose strength has become a concern with investors recently. This trend should be watched.