Marketmind: Muddied Waters
A look at the day ahead from Saikat Chatterjee.
Investors can be forgiven for being nonplussed on the data front this week. A day after U.S. consumer inflation data showed early signs of price pressures peaking, readings from the producer perspective showed inflationary readings remained firm.
That confusion was evident in global markets too.
World stocks are set to sign off the week on a record high while the U.S. Treasury yield curve is still trading near its flattest levels this year, a sign that bond punters remain concerned about inflation.
For now, the Federal Reserve can maintain its assertion that inflation rises are temporary.
But a majority of economists polled by Reuters expect the Fed to taper its asset purchases in September — the jobs market is stronger and Fed officials appear to be more willing to discuss tapering the $120 billion monthly asset purchases.
Until fresh data adds to the taper debate, markets will likely remain in summer torpor mode.
Even a widening regulatory crackdown in China has failed to ignite broader market unease with the VIX “fear gauge” dropping to a five-week low, and a U.S. equity put/call ratio slipping below already very low levels.
European and U.S. stock futures are generally flat, with the second quarter earnings season supporting sentiment. U.S. investment grade companies have recorded an impressive 30% earnings growth in the June quarter compared to the similar period two years ago, Citibank estimates.
Favourable readings were evident in Europe too with banks, historically laggards, posting impressive results.
The spoiler in the cautiously optimistic markets outlook remains the surging Delta variant of COVID-19, especially in Asia. Malaysia’s central bank on Friday slashed its 2021 economic outlook due to the COVID surge. read more Australia’s two largest cities – Sydney and Melbourne – remain in extended lockdown.
Elsewhere, oil prices fell for a second day, while the U.S. dollar held near four-month highs against its rivals.
Key developments that should provide more direction to markets on Friday:
– Europe macro: France unemployment, final July CPI, euro June trade balance.
– U.S. macro: Import price index, Michigan University sentiment readings.
– British engineering firm Babcock (BAB.L) to sell its consultancy unit Frazer-Nash for 293 million pounds ($404.5 million) in cash.
Reporting by Saikat Chatterjee; Editing by Dhara Ranasinghe
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