Marketmind: Five Alive
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[December 06, 2022] A
look at the day ahead in U.S. and global markets from Mike Dolan.
With a bit of a lag perhaps after Friday's strong jobs report, markets
are realising the U.S. economy is not yet slowing as fast as they had
assumed or the Federal Reserve may have wanted.
While dodging recession in 2023 should ostensibly be a good thing for
most people, it raises uncomfortable inflation scenarios that question
just how high Fed interest rates need to go and how long they stay
there. And given that investors are overwhelmingly positioning for peak
rates by mid year and Fed rate cuts after that, the 'good news is bad
news' reactions re-emerged on Monday.
The latest trigger was surveys showing the U.S. service sector had
regained steam in November, with employment there rebounding - much like
the robust November payrolls report had indicated on Friday.
With next week's Fed meeting in view, the readout saw the S&P500 record
its worst day in almost a month and the 'fear index' of Wall St
volatility jumped back from 8-month lows. Futures markets pushed their
implied Fed 'terminal rate' next May back above 5% - from as low as
4.85% shortly after Fed Chair Jerome's peculiarly dovish speech last
U.S. stock futures and equities in Europe and Asia were flat first thing
on Tuesday. The dollar firmed up.
The nightmare scenario for some investors is that the Fed does indeed
pause its rate rise campaign next Spring and the economy picks up pace -
but inflation fails to return close to target and the central bank is
forced to resume tightening later in the year, pushing recession onto
2024's radar too.
With Fed officials in their pre-meeting blackout period, each data point
will now be very market sensitive. Tuesday's international trade
soundings for October will be scanned for early indications of
Even though some assume Europe is already in recession, the incoming
German industrial numbers are showing it may be more shallow than many
first feared - with its own implications for inflation and interest
European Central Bank 'doves' struck a more mixed tone this week - with
ECB chief economist Philip Lane saying inflation is close to a peak even
if more rate rises are needed. Ireland's central bank chief Gabriel
Makhlouf reinforced market pricing for downshift in ECB rate rises to a
50 basis point hike next week, but also said rates may need to exceed
current terminal rate assumptions of 3%.
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A 7-Eleven convenience store has a sign
in the window reading "Now Hiring" in Cambridge, Massachusetts,
U.S., July 8, 2022. REUTERS/Brian Snyder
Australia's central bank was similarly unaccommodating on Tuesday as
it raised interest rates to a 10-year high of 3.1% and stuck with
its projection that more hikes are needed to cool inflation - to
some surprise in markets.
There was much better news from crude oil markets, where Brent
skidded further to below $82.50 as the Russian oil price cap and
sanctions came into effect - with the fall from Monday's peak close
to 7%. The year-on-year oil price gain, which was almost 100% in
April, has retreated back toward 10%.
There were further signs that China's COVID restrictions are being
lifted gradually - though that's ambiguous for global inflation
outlooks more generally.
There will also be attention later on the U.S. Senate runoff in
Georgia - although Democrats have control of the Senate regardless.
In technology, Facebook parent Meta Platforms on Monday threatened
to remove news from its platform if the U.S. Congress passes a
proposal aimed at making it easier for news organizations to
negotiate collectively with companies like Alphabet, Google and
Key developments that may provide direction to U.S. markets later on
* US Oct international trade balance, Canada Oct trade balance
* U.S. corporate earnings: Autozone, Toll Brothers, MongoDB
* ECOFIN of EU finance ministers meet in Brussels
(By Mike Dolan, editing by Alexandra Hudson, email@example.com.
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