A look at the day ahead from Sujata Rao.
So many question marks these days: will the inflation spike we are witnessing ebb? Will central banks resist temptation to significantly tighten policy? How much of a dampener is $80 oil for the world economy? Are China’s property sector problems a sign of a wider malaise?
These narratives have kept world stocks seesawing ever since they hit record highs in early-September. Wall Street futures are down half a percent while European shares look set for an even weaker open. Big losses in Asia earlier, with Hong Kong down more than 1%.
On bonds, softer growth data is failing to derail a selloff; 10-year Treasury yields are up some 30 basis points in three weeks and on Tuesday, two-year yields touched 18-month highs.
The impact of soaring energy prices is showing up in dataprints — even in Japan, wholesale inflation hit a 13-year high. British shoppers, meanwhile, upped spending by just 0.6% in September versus 3% in August (though fuel shortages peculiar to the UK probably had an outsize impact).
Another worrying piece of data is last month’s 20% slump in Chinese car sales, which will likely ripple out to global auto shares. The Chinese slowdown could also make itself felt in Germany’s ZEW index later in the day.
On the bright side, UK payrolls hit a record high in September, with a 7.2% rise in average weekly earnings in the three months to August.
All that comes just before third quarter earnings kick off. Remember several companies have already issued downbeat assessments of how higher prices will have impacted the bottom line. Q3 earnings were never expected to match the Q2 blowout but will they fall short even of the 30% growth expected of U.S. companies? The wait is on.
Key developments that should provide more direction to markets on Tuesday:
-China’s Evergrande missed a third round of bond payments
-Japan wholesale inflation at 13-year high in September
- UK retail spending rose 0.6% in Sept vs 3% increase.
- IMF issues its updated World Economic Outlook
- ECB’s Chair of the Supervisory Board, Andrea Enria, board members Philip Lane, Frank Elderson,
- Bank of Korea holds rates, flags November hike
- German ZEW
- U.S. JOLTS job openings
- U.S. Treasury auctions $96 billion in 3-year and 10-year notes
For a graphic on Treasury yields: