Marketmind: The inflation conundrum

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A look at the day ahead from Saikat Chatterjee.

FILE PHOTO: A trader works inside a booth on the floor of the New York Stock Exchange (NYSE) in New York City, US November 8, 2021. Businesshala/Brendan McDermid

There is no respite from the dreaded “I” word for global policymakers. He may have spent the bulk of the past two weeks reiterating his belief that high inflation is temporary, but markets are wary of buying into that message.

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Hardly a surprise given the recent data prints. Chinese factory gate prices rose at their sharpest clip in a quarter century, following Tuesday’s solid output inflation reading in the United States, according to the latest data.

Then add to the crude oil prices for the fourth consecutive day with Brent crude at $85 a barrel.

The wide disconnect between policymakers’ chants and economic data pushed Wall Street into the red on Tuesday, ending an eight-session all-time high.

So despite forecast-beating company results — the bumper Q3 earnings season has so far propelled 81% of S&P 500 names — European and US stock futures are pointing south on Wednesday.

The panic over price pressure is even more pronounced in bond markets, where investors are rushing to raise debt linked to inflation. Inflation-linked, or “real” bond yields are now below -1.1% in the United States, below -2.0% in Germany, and below -3.2% in the UK.

Then there are concerns about China’s cash-strapped Evergrande’s ability to make an offshore bond payment before Wednesday’s deadline, and you have Wall Street’s “fear gauge,” the VIX at a one-month high.

The safe-haven Japanese yen is also taking the dollar to a one-month low below 112 yen.

Another test is about to take place. The US consumer price index, later on Wednesday, is projected by a Businesshala poll of economists to come in at an annualized 4.3%, compared to the Fed’s average annual 2% inflation target.

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

-Macro corners: German CPI, Italian industrial production, US initial jobless claims.

-Japan makers’ mood falls to 7-month low

-Allianz raises full-year outlook after better-than-expected growth of 2.3% in Q3 net profit.

-Credit Agricole Q3 profit beat expectations due to lower bad loan provisions and higher retail revenue

Shares of China’s Fantasia Holdings developer fell 50% after it said there was no guarantee it could meet debt obligations

Reporting by Saikat Chatterjee; Editing by Sujatha Rao

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