A look at the day ahead from Sujata Rao.
A phone chat between the U.S. and Chinese presidents has made all the difference to markets’ mood: world stocks have snapped a three-day losing streak, the yuan is at one-week highs and U.S. Treasury yields are moving up.
Yet there is no dismissing the brewing concerns — we seem to be past peak liquidity and peak growth, yet inflationary pressures show no sign of abating. Chinese factory gate prices have hit 13-year highs, the ECB just upped inflation projections and later on Friday, we will see what U.S. producer prices looked like in August. Remember last month brought the biggest annual increase in over a decade.
Warnings about input costs are coming through from companies too, with Nestle warning of even higher factory prices in 2022. The question is when these costs trickle down to consumers and their earnings; wage inflation, as we know, tends to be less easily tamed.
It comes as the post-pandemic growth rebound fizzles. Data shows Britain’s economy barely grew in July (versus expectations for a 0.6% expansion), even as tax hikes loom.
What of stimulus? The Bank of England appears well on the road to a 2022 interest rate rise while the Bank of Canada on Thursday flagged plans to stop adding new stimulus and to raise interest rates.
Policy has long been tightening across emerging markets and later on Friday, Russia will likely raise interest rate for the fifth time this year.
Finally, there is no getting away from the fact that the ECB — among the more dovish central banks — has hit peak QE, even though it was at pains on Thursday to describe its stimulus slowdown as recalibration rather than tapering.
So while equity futures signal a more cheerful session in Europe and Wall Street, stocks may face a rocky ride from here (read our take on this subject here https://www.reuters.com/business/finance/global-markets-investment-analysis-pix-2021-09-09).
Key developments that should provide more direction to markets on Friday:
-U.S. President Joe Biden and Chinese leader Xi Jinping spoke for 90 minutes
-China Evergrande bonds rebound as loan payment extensions ease default worries
-Willis Towers Watson has $5 bln of capital, possibly for M&A
-Euro zone finance ministers meet
-Fed speakers: Cleveland President Loretta Mester 1300 GMT
-Russia central bank meeting
Ratings: S&P: Ukraine, Ghana, Jordan, Malta; Moody’s: Montenegro
Graphic: U.S. inflation: Has it peaked?: https://fingfx.thomsonreuters.com/gfx/mkt/znvneewwapl/Pasted%20image%201631126653926.png
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