A look at the day ahead from Julien Ponthus.
This year’s Physics Nobel Prize honoured scientists working on systems that help decipher the Earth’s shifting climate patterns.
Yet their research won’t provide answers to one key question dominating financial markets: how cold or how warm this winter will be, how that will play on surging gas and oil prices, and therefore on inflation.
Brent crude futures stand at $84 a barrel this morning and Russian President Vladimir Putin reckons prices could well reach $100.
While the world has indeed moved on from the 1970s’ petrol dependence, the International Energy Agency warned nonetheless the energy crunch may stoke inflation and slow economic recovery.
Supply chain issues, production bottlenecks and labour shortages are fuelling fears meanwhile that growth could falter enough to lead to some sort of stagflationary scenario.
On that note, the number of Americans filing new claims for unemployment benefits fell to a 19-month low, suggesting that a shortage of workers, rather than weakening labour demand was behind slower job growth.
What the policy response should be, is being debated between hawks and doves.
St. Louis Fed President James Bullard urged the U.S. central bank to taper fast, while BoE policymaker Silvana Tenreyro said a rate rises to tackle short-lived effects on inflation such as energy prices would be “self-defeating”.
Markets are taking a rest, however, from fretting about stagflation– world stocks are nearing three-week highs while European and U.S. equity futures are ticking up after a positive Asian session.
Wall Street set the tone on Thursday when the S&P 500 notched its biggest daily percentage advance since early-March, and banking giants JPMorgan (NYSE:JPM), Citi, Well Fargo and Bank of America (NYSE:BAC), crushed estimates with combined Q3 profits of $28.7 billion.
Bond yields are off recent highs, with 10-year Treasury yields touching 10-day lows and Germany’s Bund back at -0.18% after tip-toeing over -0.10%. Watch for U.S. retail sales and inflation expectations data later in the day.
Key developments that should provide more direction to markets on Friday:
-Bitcoin nears $60,000 as investors eye first U.S. ETFs
-China looks to lock in U.S. LNG as energy crunch raises concerns- sources
-Rio Tinto cuts 2021 iron ore shipments forecast on labour squeeze
-Hugo Boss raises 2021 outlook after strong third quarter
– German and UK new car registrations
– New York Fed President John Williams speaks
– U.S. retail sales/University of Michigan index/inflation expectations
Graphic: MSCI Europe net earnings revisions – https://fingfx.thomsonreuters.com/gfx/mkt/akpezamnevr/European%20earnings%20revisions.PNG
Marketmind: Chaos, the weatherman and inflation
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