Hot topics | Coronavirus pandemic

Marketmind: Stagflation blues

Marketmind: Stagflation blues

Saikat Chatterjee gives a look at the day ahead.

Even by the most conservative standards of international organizations, the International Monetary Fund is well-known for its cautious projections. Investors should be aware when the Fund cut its 2021 growth forecast on Tuesday and said it was becoming more concerned about deep inflationary pressures.

Markets are also nervous ahead of the release of September U.S. CPI, the big data point of today, which will be released in September. Stock futures in the United States are in red, and major government bond yield curves maintain a steepening bias. The rising stagflation fears suggest that the data risks are asymetric; a higher print than the 0.3% forecast in Reuters poll might result in an even bigger market reaction than merely lowering the number.

In some ways, it's as though the market is trying to defend central banks' transitory inflation rhetoric, with money markets in the developed world aggressively pricing interest rate hikes over the past week.

COVID is no longer perceived as the market's greatest risk for the markets for first time since June, according to Deutsche Bank' newest monthly survey, with inflation and bond yields taking the top spot.

With Chinese export growth beating forecasts, an unexpected decrease in Japanese machinery orders, and a drop in Australian consumer confidence, recent Asian macro data was largely mixed.

So global stocks aren't too far off May lows, while a measure of currency market volatility is slipping towards 2021 highs. The recent rise in Treasury yields has stalled for now, and the dollar is on the back foot against other major currencies.

The first major bank to report on Wednesday also marks the unofficial start of the U.S. corporate earnings season. Banks have had a busy year this year, with shares outperforming the market by largely, but investors will be keeping ear to ears for what bank CEOs say on the outlook.

Key developments that should provide more direction to markets on Wednesday:

Federal Reserve Minutes for the United States

August Euro area industrial production, UK GDP rises after falling in July.

BOE's Cunliffe, ECB'S Visco, and the central bank'' spokesman corner

SAP (SAPG.DE), a german business software company, has raised its full-year outlook for resounding third time on the back of soaring earnings in the third-quarter.

THG Ltd (THG.L) lost over a third of its value on Tuesday, just as the company gave presenting to investors.

Sales at French luxury group LVMH's (LVM.PA) fashion and leather goods division (LMH.SA) soared strongly in the third-quarter. read more

You may also like: