Consumer prices jumped 4.4 percent from a year earlier in October, exceeding all 28 estimates in a Bloomberg survey, according to government data published yesterday. The pace of gains compares with 9.8 percent in India, where interest rates have been raised six times this year. Brazil's inflation rate is 5.2 percent and Russia's is 7.5 percent, latest figures show.

Zhang Ping, head of China's top economic and planning agency, said this week that the government may miss its annual inflation target of 3 percent as excessive global liquidity and a weakening dollar drive raw-materials prices higher. The U.S. and Japan are using near-zero interest rates and money-printing to help avert recessions, spurring demand for higher-yielding assets and commodities.

Credit Growth
The central bank will "flexibly use our traditional monetary-policy tools," Deputy Governor Hu Xiaolian said yesterday at a forum in Beijing. Policy makers guided yields on three-year bills higher at a sale yesterday to help drain cash from the financial system and this week raised banks' reserve- requirement ratios by as much as a percentage point.

New lending amounted to 587.7 billion yuan ($89 billion) in October, bringing this year's total to 6.88 trillion yuan, according to data released yesterday. The government aims to limit credit growth to 7.5 trillion yuan this year and a target of 7 trillion is expected to be set for 2011, based on the median estimate of 10 economists polled yesterday by Bloomberg.

One-year interest-rate swaps, the fixed cost needed to receive the floating seven-day repurchase rate, rose 12 basis points, or 0.12 percentage point, this week to 2.61 percent. The yield on the 3.29 percent bond due September 2020 climbed 12 basis points to 3.98 percent, according to China Interbank Bond Market. The rate on similar-maturity U.S. Treasuries increased 10 basis points to 2.63 percent.

David Fuller's view The Chinese have been in tightening mode for the much of the last year but have used the entire range of policy tools available to achieve their aims. These have ranged from raising bank reserve requirements, allowing the Yuan to appreciate from June, increasing regulation of the property market, trialing property tax regimes in a number of cities and increasing the lending rate.

China like much of Asia hasn't had a particularly good harvest this year so food prices have risen faster than might otherwise have been expected. In additional global commodity prices have raced ahead over the last 10 weeks fuelled by a weak Dollar, declining faith in fiat currencies and an increased perception that global growth is robust. In a country like China where there are still hundreds of millions of people on a subsistence lifestyle inflation can quickly become a political liability. Therefore we can expect further measures to contain such pressures. If the past is any guide, China will continue to use all available tools, including releasing commodity supply from stockpiles, rather than simply rely on interest rate hikes.

The Shanghai A-Shares Index had become somewhat overextended in the short-term and encountered resistance in the region of the 14-month progression of lower rally highs. Some consolidation of recent powerful gains appears likely and a sustained move above 3300 will be required to confirm a return to medium-term demand dominance.

The Hong Kong Enterprises Index had a less extreme reaction today but is in the region of a potential area of resistance near the April high. A sustained move below 13,000 would be required to further delay medium-term upside potential.

The level of anxiety among investors has increased considerably over the last few weeks as Eurozone sovereign debt has again made headlines and the impact of a fresh round of quantitative easing is digested. While China and other Asian countries are in tightening mode, the USA has yet to embark on a fiscal austerity path and the ECB is limited in the extent to which it can remove liquidity by the budgetary pressures on the periphery. Monetary conditions globally therefore remain accommodative, so the chances of an outright reversal in risk assets are relatively low. A more likely prospect remains a pause and consolidation which would allow overbought conditions relative to the 200-day MA to be unwound. The more overextended an instrument is the more likely it is to revert violently.

The Philippines continues to extend the pullback from last week's high. This is the single largest weekly downward dynamic in more than a year and probably marks the beginning of a reversion towards the mean.

Indonesia has lost momentum above 3500 but while somewhat weaker today, it has yet to post the downward dynamics indicative of widespread profit taking. Nevertheless, the odds are stacked in favour of a further pause and consolidation rather than an immediate reassertion of the bull trend.

Malaysia closed well of its low today but has formed a weekly key reversal in the region of the 2008 peak. A pause in this area would not be surprising which would allow the Index to unwind the overbought condition relative to the 200-day MA.

India's Nifty Index has paused in the region of the 2008 peak and remains susceptible to a further pullback towards the 200-day MA currently near 5500. However, a sustained move below 5000 would be required to question medium-term upside potential.

Taiwan is testing its January highs but has sustained a progression of higher reaction lows since May and these would need to be taken out, with a sustained move below 7850, to question the medium-term uptrend.

Singapore is not nearly as overextended as the above indices but also pulled back rather sharply today. However, a sustained move below 3000 would be required to question medium-term upside potential.