Marketmind: Stagflation blues

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A look at the day ahead from Saikat Chatterjee.

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The International Monetary Fund is known for its cautious forecasts, even by the conservative standards of global organizations. So, when the fund cut its 2021 growth forecast on Tuesday and said it is more concerned about inflationary pressures, there is reason for investors to take notice.

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So ahead of the September US CPI release, the big data point of the day, markets are nervous. US stock futures are in the red and key government bond yield curves maintain a strong bias. Rising inflation fears indicate that risks from the data are skewed; A high print could lead to a bigger market reaction than a small miss, compared to the 0.3% forecast in a Businesshala poll.

In some ways, it appears that the market is trying to deceive central banks on the “temporary inflation” mantra, with money markets in the developed world aggressively moving towards raising interest rates over the past week.

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In fact, according to Deutsche Bank’s latest monthly survey, for the first time since June, COVID is no longer considered the biggest risk to markets, with high inflation and bond yields being topped by.

The latest Asian macro data was a mixed bag, with Chinese export growth beating expectations, an unexpected drop in Japanese machinery orders and declining Australian consumer confidence.

So global stocks are not far off from May lows while a gauge of currency market volatility is heading towards 2021 highs. However, recently growth in Treasury yields has stalled and the dollar is on the back foot against other major currencies.

Wednesday also marked the unofficial start of US corporate earnings season, with JPMorgan being the first major bank to report. Banks’ performance this year has been impressive, with stocks outperforming the market by a wide margin, but investors will pay attention to what the bank’s CEO has to say on the outlook.

Key developments that will provide further direction to the markets on Wednesday:

US Federal Reserve Minutes

August Euro area industrial production, UK GDP return to growth zone in August after contracting in July

Central Bank Speaker Corner: BOE’s Cunliffe, ECB’s Visco

German business software group SAP (SAPG.DE) raised its full-year outlook for the third time on the back of a strong third quarter performance.

Shares of THG Ltd (THG.L) lost more than a third of their value on Tuesday, as the company made a presentation to investors.

French luxury group LVMH (LVMH.PA) fashion and leather goods division saw strong sales growth in the third quarter.

banks
Reporting by Saikat Chatterjee;

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