A look at the day ahead in markets from Saikat Chatterjee
Amidst the rubble of financial markets this week, investors can be forgiven for feeling pessimistic. But the newsflow over the past few hours has been encouraging.
For one, Chinese officials say half of Shanghai has achieved “zero COVID” status (though activity curbs remain in place for now). Second, U.S. President Joe Biden is considering eliminating Trump-era tariffs on China as a way to lower goods prices.
Then, a growing number of Federal Reserve officials pushed back on Tuesday against the possibility of 75 bps interest rate hikes. And finally, there are hopes U.S. consumer price data due later on Wednesday will show inflationary pressures are peaking.
All that has put U.S. stock futures firmly in the black and Asian equities have picked themselves up from near two-year lows. Chinese stocks rose as much as 2% .
Bond market inflation gauges too show signs of reduced stresses — the 5-year, 5-year U.S. inflation swap, a measure of expected inflation over the five-year period starting five years from today, has slipped to 2.44%. That’s more than 20 basis points off the nine-year highs reached late last month.
And 10-year U.S. Treasury yields are back below 3%, having risen to more than a 2-1/2 year high of 3.2% on Monday.
But the broader macro and geo-political backdrop remains formidable, with flows of Russian gas to Europe through a key transit point drying up on Wednesday
Morgan Stanley slashed its global growth forecast for 2022 to 2.9%, less than half of 2021’s run-rate, citing the toxic cocktail of tightening monetary policy and persistent supply chain frictions.
Key developments that should provide more direction to markets on Wednesday:
U.S. consumer price data, due at 1230 GMT. Poll 8.1%, previous 8.5%
Central bank speaker corner: ECB’s Lagarde, Nagel, Muller. U.S. Federal Reserve: Bostic
Source: Reuters
