Humble pie on central bankers’ menu – Metro US
A preview of the day ahead at the Sujata Rao markets.
First Sweden, now Australia. Two central banks that had said they saw no need for rate hikes until 2023 or 2024 ate the humble pie in the space of a week.
Australia hiked rates 25bps to 0.35% on Tuesday, a bigger hike than markets had bet and confirmed more to come in the coming months. He also doubled the inflation forecast for this year. This comes after Sweden last week hiked rates by 25 basis points and signaled more in upcoming meetings.
This shows how much inflation has surprised on the upside. And with continued lockdowns in China, there may be no respite from the supply chain issues that have been one of the causes of the price explosion.
A report by RBC found that global port congestion is getting worse, marine insurance costs continue to rise and a fifth of the world’s container fleet is stuck in various ports. Ouch.
Next is the Federal Reserve meeting which starts later today and ends on Wednesday, almost certainly with a 50 basis point rate hike and an announcement that the balance sheet reduction will begin next month.
On Monday, 10-year US Treasury yields rose above the 3% level for the first time since 2018.
Interestingly though, the jump in yields narrowed to a 17 basis point rise in actual inflation-adjusted yields, which brought 10-year break-evens – an indicator of future inflation expectations – down. below 3%. Could it be that the markets are increasingly convinced that an aggressive Fed will be able to control inflation and inflation expectations?
Stock markets are opening stronger in Europe this morning and US equity futures are also higher. This was after a flash crash on Monday caused by a Citi trader’s big finger.
Nervous traders in Asia sent Alibaba stocks and bonds plunging after a media report that authorities in Hangzhou had imposed restrictions on a person named Ma. They recovered after he recovered. turned out not to be Jack Ma from Alibaba.
Key developments that should further guide markets on Tuesday:
– Inflation in South Korea hits its highest level in 13 years
– German unemployment April
– Eurozone March PPI (February 36.2%)
– Energy ministers of European Union countries hold an emergency meeting to discuss the bloc’s energy supply,
– ECB President Christine Lagarde and Central Bank of Norway Governor Ida Wolden Bache speak
– Informal EU video conference of economics and finance ministers.
– US Factory Orders/Durable Goods/JOLTS Job Postings
– European results: BNP Paribas/Telenor/Deutsche Post/Uniper/BP/Osram/JD Sports/telecom Italia
– US profits: DuPont, Thomson Reuters, Pfizer, Estee Lauder, S&P Global, Lyft, Starbucks. Herbalife, AIG, Prudential
(Reporting by Sujata Rao; editing by Dhara Ranasinghe)