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THE INFLATION CONUNDRUM (0828 GMT)
There's no respite for global policymakers from the dreaded
“I” word. They may have spent the greater part of the last two
weeks reiterating their belief that high inflation is
transitory, but markets remain wary of buying into that message.
Hardly surprising, given recent data prints. Chinese factory
gate prices gained at their fastest clip in a quarter century,
according to latest data, which follows on from Tuesday's solid
production inflation reading in the United States.
Then add in a fourth straight day of higher oil prices, with
Brent crude at $85 a barrel.
The widening disconnect between policymakers mantra and
economic data pushed Wall Street into the red on Tuesday, ending
an eight-session run of all-time closing highs.
So despite a slew of forecast-beating company results -- the
bumper Q3 earnings season has seen 81% of the S&P 500 names
beating estimates so far -- European and U.S. stock futures are
pointing south on Wednesday.
The nervousness around price pressures is even more palpable
in bond markets, where investors are rushing to scoop up
inflation-linked debt. 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 Britain.
Then there are swirling concerns about China's cash-strapped
Evergrande's ability to make an offshore bond payment before a
Wednesday deadline, and what you have is Wall Street's “fear
gauge”, the VIX at a one-month high.
The safe-haven Japanese yen too is catching a bid, taking
the dollar to a one-month low below 112 yen.
Another test looms. The U.S. consumer price index, due later
on Wednesday, is predicted by a Reuters poll of economists to
come in at an annualised 4.3%, versus the Fed's average annual
2% inflation target.
Key developments that should provide more direction to markets
on Wednesday:
-Macro corner: German CPI, Italian industrial production, U.S.
initial jobless claims.
-Japan manufacturers' mood falls to 7-month low
-Allianz raises full year outlook after a
better-than-expected 2.3% rise 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 plunged 50%
after it said there is no guarantee it can meet debt obligations
(Saikat Chatterjee)
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EUROPE: STILL POSITIVE (0728 GMT)
European equities are set to open slightly higher after a
fall in bank and miners stocks put an end to 8 straight sessions
of gains yesterday, but the Stoxx 600 is still within striking
distance of its all-time high.
Stock futures don’t show any signs of a potential
significant correction as an upbeat earnings season and central
banks’ commitment to keep rates on hold in the near term
continue to support risk sentiment.
But inflation worries took centre stage yesterday after U.S.
PPI data pushed down U.S. real yields. Investors are back to
wondering if these numbers could renew pressure on policymakers
to tighten monetary policy.
Wall Street ended its multi-day rally, and China stocks lost
ground after inflation data dampened expectations of a policy
rate cut in the near term.
(Stefano Rebaudo)
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