Morning Bid: It’s all about inflation

A look at the day ahead at Anshuman Daga’s European and global markets

Markets are looking at inflation again. Just as global economic growth eases and labor markets remain tight, price trends have become the main focus for investors.

A slew of strong economic data from the US has bolstered the view that interest rates will remain high for longer.

The most recent evidence came from the personal consumption price index, the Federal Reserve’s preferred inflation gauge, which shot up 0.6% last month after rising 0.2% in December.

In Europe, provisional inflation data for February will come out on Monday and Tuesday from Germany, France, Spain and Portugal, followed by the flash number of the euro bloc on Thursday.

Although headline inflation in the euro area is declining, there is a growing awareness that it could prove to be more persistent than previously expected.

European Central Bank officials are not ruling out the possibility that rates may need to rise significantly after March.

Traders are now pricing in another 75 basis points of movement in the 20-country Eurozone before the end of the summer.

On Monday, gloomy sentiment took its toll on Asian markets. with a benchmark index down 1% to its lowest level since early January. The dollar hovered near a seven-week high as US Treasury yields rose.

New Bank of Japan governor Kazuo Ueda said the merits of the bank’s current monetary policy outweigh the costs, stressing the need to continue supporting the country’s economy with ultra-low interest rates.

This week, European investors will also be processing results from Lufthansa, fund manager Abrdn, London Stock Exchange and Telefonica, among others.

Meanwhile, nervous markets are also eyeing any new developments on the Russia-China front, after the US said any deadly aid from China to Russia would have a “real cost”.

Republican deputy Michael McCaul has said Chinese leader Xi Jinping is preparing to visit Moscow next week for a meeting with Russian President Vladimir Putin.

On the business front this week at the world’s largest telecoms conference, a clash between Big Tech and European Union telecoms over who will insure the network infrastructure will dominate the discussion in Barcelona.

Key developments that could affect markets on Monday:

European Economic Data: Consumer Confidence Eurozone February, CPI Germany February

US economic data: Jan durable goods orders

Reporting by Anshuman Daga; Edited by Simon Cameron-Moore

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