Inflation has been the prime talk for many central banks.
Inflation pressures are broadening and deepening especially in the US, UK, SA and Canada, and along with strong labour market data, are adding further pressure on the Federal Reserve System(FOMC), Bank of England(BoE) and Bank of Canada(BoC) to introduce rate hikes soon, especially as the last two are already on the road for it with the BoE to deliver the long flagged rate hike at the December meeting.
Following the South African Reserve Bank’s interest rate hike, Governor Lesetja Kganyago indicated that there will be further increases in each quarter of 2022, 2023 and 2024.
Kganyago says that this is due to increased inflation risks despite a still-fragile economic recovery in South Africa.
The US Treasury Yields restored their safe haven allures, with the 30-year at 2% and 10-year at 1.66% this week. Yields keep rising on the increasing worries over inflation and a possible hawkish response from Central banks. In contrast, Bund futures are lower, due to the ECB’s extremely dovish policy stance, although the message in December could well be less dovish than markets are currently expecting.
The US Dollar Index holds at its 16-month high, i.e. 96., while the solid economic data, the strong USD, the uptick in yields and the largely risk-on backdrop has boosted USDJPY to 4-year high territory, a breath away from 115.00 level. EURUSD has slipped below 1.1300, while Cable steadied within the 1.3400 area as the market is giving better odds of a December hike which could limit GBP losses.
China’s developers remain in focus with the media reporting that Evergrande’s online sales platform has closed some units and that authorities will ease restrictions on funding of developers. That, alongside the worries about COVID-19 and higher costs, is keeping Asian indexes broadly in the red. JPN225 at 29,702.
On the other hand, the US stock markets found solid support from the flight out of bonds and into risk, especially as strong earnings news boosts investor sentiment. All three indices remain well above their 20-day moving averages, sustaining the month’s gains. Technology stocks are weighed down, while the consumer discretionary sector is leading the way so far, with +6% in a day.