European, global markets see a mixed day ahead
SYDNEY Reuters -- A look at the day ahead in European and global markets by Wayne Cole.
Tuesday's bout of post-pandemic euphoria in Chinese markets has cooled, perhaps due to the fact that it will take a long time to raise vaccination rates there.
If restrictions are relaxed, it will mean more infections and illness, which could hamper growth over the first half of next year. The damage already done is underlined by the disapointing Chinese PMI surveys for November.
Both markets gave back yesterday's gains, so there's an expectation that Beijing is about to open up, which has to be positive for the global economy and supply chains over time.
That leaves investors waiting for Powell to come back. The analyst view is that he will have to play Grinch to stop U.S. markets from further easing financial conditions. Since the Fed hiked by 75 basis points on Nov. 2, 10 year yields have fallen 38 basis points and have undone much of that good work.
The message will likely be: Hold your horses on rate cuts. The labour market is very tight, and the inflation of 7.7% is not 2%. The terminal rate will have to be higher than originally thought to be sufficiently restrictive and stay there for longer.
There is a sign of a turning point in inflation and it is important to be hawkish. The annual pace was slowed to 6.9%, from 7.3%, and suggests a peak is near.
Inflation data from Germany and Spain surprised on the downside and saw markets take 10 bps off pricing for ECB rates at the December policy meeting. Even if the core measures prove stickier, that suggests that the EU-wide inflation figure will be less than the forecast of 10.4%.
Markets could be affected by key developments on Wednesday:
The Federal Reserve Chair Jerome Powell spoke about the labor market and the economic outlook before a hybrid Brookings Institution event at 1830 GMT, including a q&a.
A Horde of U.S. data including JOLTS job openings, ADP employment, Chicago PMI and the second estimate of Q 3 GDP and PCE prices.