Morning Bid: Core beliefs

Morning Bid: Core beliefs

Morning Bid: Core beliefs

Summary :

World markets are unlikely to catch a break until central banks see some convincing progress on reining in inflation – and Thursday is a huge moment in that fight despite myriad tensions elsewhere.

There was an eerie market calm of sorts before Thursday’s release, although a VIX index (.VIX) of implied U.S. equity volatility that’s in excess of 33 points reveals the level of simmering tension. However, even battered British gilts facing a blizzard of domestic problems managed to steady up on Thursday too – nervously awaiting the end of direct Bank of England intervention on Friday. Key developments that should provide more direction to U.S. markets later on Thursday:

* G20 finance ministers and central bankers meet at annual IMF/World Bank meeting in Washington

* Bank of England Financial Policy Committee director Sarah Breedon speaks in London.

A look at the day ahead in U.S. and global markets from Mike Dolan.

World markets are unlikely to catch a break until central banks see some convincing progress on reining in inflation – and Thursday is a huge moment in that fight despite myriad tensions elsewhere. Headline U.S. consumer price inflation is expected to have slipped back two tenths of a percentage point to a still-bruising 8.1% in September as the Labor Department gets set to publish its latest report.But it was creeping annual growth in August of underlying “core” prices that exclude energy and food that sent markets into tailspin last month – fearing, correctly, that it would push Federal Reserve hawkishness into overdrive.

And that core inflation rate is forecast to have higher again in September to 6.5% from 6.3%.

The impact of the last CPI report on Sept. 13 has been pretty clear – as futures markets have pushed the implied peak or “terminal” rate for the Fed’s interest rate cycle up almost 75 basis points to about 4.7% since then. Ten-year Treasury yields have risen about 60bp to just under 4%, the S&P500 (.SPX) has lost more than 10% and the dollar (.DXY) has boomed almost 5%.The readout of last month’s Fed policy meeting showed officials pushing for interest rates at more restrictive levels and maintaining them there for some time to defuse “broad-based and unacceptably high” inflation. read moreThere was an eerie market calm of sorts before Thursday ‘s release, although a VIX index (.VIX) of implied U.S. equity volatility that’s in excess of 33 points reveals the level of simmering tension . However, even battered British gilts facing a blizzard of domestic problems managed to steady up on Thursday too – nervously awaiting the end of direct Bank of England intervention on Friday. read moreWith Germany confirming its annual September inflation rate at a whopping 10.9% on Thursday , European central bankers in Washington for the International Monetary Fund meeting were just as hawkish as the Fed read moreAnd that’s left Japan’s ongoing monetary easing as an outlier and the yen back on the slide to levels that prompted solo Bank of Japan intervention to support it over the past month. Worryingly for Tokyo, the latest G7 finance ministers statement mentioned nothing about currency market ructions . read moreFinance Minister Shunichi Suzuki said he told his G7 and G20 counterparts that Japan was “deeply worried about sharply rising volatility” in FX and that Japan stands ready to take “decisive” action against rapid moves. read moreMeantime, the International Energy Agency said on Thursday that OPEC+’s decision to cut in output has driven up prices and could push the global economy into recession – while Saudi Arabia claimed the decision was not political. read more read moreWith the start of the U.S. earnings season underway later with releases from BlackRock and others, Taiwanese chipmaker TSMC (2330.TW) said cut its annual investment budget by at least 10% for 2022 and struck a more cautious note than usual on upcoming demand. read more

Key developments that should provide more direction to U.S. markets later on Thursday :

* G20 finance ministers and central bankers meet at annual IMF/World Bank meeting in Washington

* Bank of England Financial Policy Committee director Sarah Breedon speaks in London. BoE monetary policymaker Catherine Mann speak in Washington