A look at the day ahead in U.S. and global markets from Mike Dolan
A week of conflicting U.S. economic signals was made little clearer by Wednesday’s readout of July’s Federal Reserve meeting and leaves markets looking overseas for more clues.
Fed meeting minutes were read with a dovish tint that argues for next month’s interest rate rise to be a smaller increment than the previous two. But that failed to shift the financial markets’ dial to any great extent.
Last month’s policymaker views have already been overtaken to some degree by a fast-changing picture of ebbing inflation and looser financial conditions and markets crave a sharper take from the Fed’s annual Jackson Hole symposium next week.
That’s left Fed Funds futures pricing in a 60% chance of the next rate hike being 50 basis points and 40% of a 75 bps move, with Wall St stock futures and Treasury bond yields getting little additional impetus. The dollar nudged higher, with some traders pointing to emphasis in the Fed minutes on how its strength aids the inflation battle by subduing import prices.
Gloomier demand, inflation and policy soundings Europe and China dampened the mood otherwise.
After Britain shocked on Wednesday by becoming the first G7 economy to top 10% inflation in the current cycle, expectations for Bank of England tightening have risen and data showed consumer spending slowing sharply.
European Central Bank board member Isabel Schnabel told Reuters on Thursday the euro zone’s inflation picture had failed to improve since the ECB’s July rate hike, suggesting she favours another half-point rate rise next month even as recession risks harden.
“The concerns we had in July have not been alleviated,” she said in comments that helped lift 2-year German government bond yields to their highest levels since June as July inflation data confirmed earlier flash estimates of a headline 8.9% rate.
Norway’s central bank became the latest to lift interest rates by half a percentage point – following a similar move in New Zealand the previous day.. Turkey’s central bank decides later on Thursday.
Demand in China continues to be a worry as worsening drought affects power supplies on top of ongoing COVID-19 outbreaks, property sector jitters and Taiwan tensions. Shanghai and Hong Kong stocks fell earlier
Oil prices, whose 25%-plus swoon over the past six weeks encouraged some inflation optimism, pushed back higher on worsening inventory figures.
Key developments that may provide market direction on Thursday:
* Philadelphia Fed’s August Business Index
* US July existing home sales
* US weekly jobless claims
* Kansas City Fed chief George speaks in Independence, Minneapolis Fed chief Kashkari speaks in Minneapolis
* Canada July Producer Price Index
* US earnings: Estee Lauder, Kohl’s, Applied Materials
* Turkey’s President Erdogan meets Ukraine President Zelenskiy and U.N. Secretary General Guterres in Lviv
* Turkey’s central bank latest policy decision
Graphic: G7 2-yr yields https://fingfx.thomsonreuters.com/gfx/mkt/zjpqkbmjwpx/One.PNG