A look at the day ahead in European and global markets from Ankur Banerjee
All sides in the UK gilt markets are hanging tough. Prime Minister Liz Truss is ‘absolutely’ committed to her spending plans, the Bank of England is absolutely determined to end its bond-buying by Friday and the markets are absolutely unconvinced about stability and calm.
Sterling is rallying but volumes have thinned in a market weary of the histrionics, and gilt yields are at their highest in two decades. If that wasn’t enough cause for worry, August GDP data showed the United Kingdom is on the brink of recession.
The BoE may be the one forced to blink, if the pension funds rebalancing it wants to see happen by Friday doesn’t happen.
National Australia Bank’s Ray Attrill says “the Bank will necessarily be there if market conditions demand” since any central bank’s financial stability mandate will trump the macro-economic one. Yet, he points to how that may not mean the BoE continues buying gilts in conflict with its inflation objective.
Meanwhile, investors anxiously await U.S. inflation data for September later on Thursday. Core inflation is projected to rise 6.5% year-on-year. The figures will be another read on how the Fed is likely to proceed with its rate hike plans.
A readout of last month’s policy meeting showed that the Fed worried more about doing too little on inflation than too much, agreeing they needed to raise interest rates to a more restrictive level and then maintain them there for some time.
Vying for attention is another central bank with a dilemma on the other side of the world.
As the yen breached 24-year lows and Japan repeated its standard line that it is on guard to take appropriate action against excess volatility in the foreign exchange market, investors are still not ready to bet against the Bank of Japan’s yield curve policy.
Key developments that could influence markets on Thursday:
Economic events: CPI data from Germany and Sweden, U.S. inflation data
Speakers: BOE’s Sarah Breeden, Federal Reserve Board Governor Michelle Bowman, World Bank group president David Malpass, IMF’s Kristalina Georgieva and U.S. Treasury Secretary Janet Yellen to speak at different events
Earnings on the deck: Chipmaker TSMC, Blackrock and Infosys
(Reporting by Ankur Banerjee; Editing by Kim Coghill)
