A look at the day ahead in European and global markets from Vidya Ranganathan
The Federal Reserve’s blackout period has markets grasping at straws — home prices, sentiment indicators, Microsoft’s cloudy earnings and any little signs of economic weakness –and pretending the Fed will go easier on future tightening.
There’s an element of complacency in the rally. Economists polled by Reuters said the central bank should not pause until inflation gets down to around half its current level. But it’s also that markets “ain’t nothin’ but tired” of buying the dollar and selling everything else for months.
Wednesday has seen even Asian markets join the rebound on Wall Street, brushing aside fears around China and an empowered President Xi Jinping’s plans, as rising U.S. Treasuries lift all other markets.
The respite rally in Japanese government bonds suggests the Bank of Japan may not need to intervene again in the yen for now, while it heads off on Thursday to debate policy. China’s yuan is anchored after state banks sold dollars in onshore and offshore markets during London trading hours the previous day.
The glass half-full view is also taking the Rishi Sunak-Jeremy Hunt duo at the helm in Britain as positive, and the European Central Bank’s near-certain 75bps rate rise on Thursday as just another step towards neutral rates, given energy prices are falling.
That’s risky, as Australian markets found out this morning after inflation raced to 32-year highs and called into question the RBA’s possibly premature decision to go slower with rate hikes.
Europe woke up to Standard Chartered Bank’s surprisingly good results, just a day after HSBC disappointed.
But the one bankers are watching is Credit Suisse, which reports earnings but also a much-speculated strategic overhaul on Thursday.
Key developments that could influence markets on Wednesday:
OTTAWA – The Bank of Canada’s key policy interest rate announcement and Monetary Policy Report – 1400 GMT
EARNINGS: Standard Chartered Bank, Deutsche Bank, Kraft Heinz, Twitter Inc
(Reporting by Vidya Ranganathan; Editing by Shri Navaratnam)