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Marketmind: Inflation or growth? – Metro US

Marketmind: Inflation or growth?

FILE PHOTO: A person uses a petrol pump, as the
FILE PHOTO: A person uses a petrol pump, as the price of petrol rises, in Lisbon

A look at the day ahead in markets from Sujata Rao

A JPMorgan survey shows a record high 86% of its clients planned to raise equity exposure. It is unclear if those plans will have come unstuck after the latest spurt in oil and commodity, and galloping inflation expectations.

The bank itself is warning central banks face a stark choice –to “live with energy-driven inflation or kill off economic growth”.

The rise in five-year Treasury “breakevens” to 3.5% is alarming, coming as it does on the heels of the Federal Reserve’s interest rate liftoff and money markets pricing nearly 200 basis points of increases this year alone.

So breakevens, essentially bond markets’ view of where inflation may be in five years time, have responded to policy tightening signals by moving even higher. While five-year inflation swaps, possibly a more reliable gauge, are at 2.3%, that’s still above the Fed’s target.

Fed boss Jerome Powell came out swinging on Monday, with a pledge of 50 bps moves if needed. Money markets also now see a roughly 3% Fed funds rate by Sept. 2023, compared to a 2.1% pricing at the start of March.

In short, chances are the Fed — and other central banks — will act aggressively to stamp out inflation which they now see as racing away from them.

Emerging market central banks know that feeling of losing control of inflation — Hungary should on Tuesday raise rates by 100 bps, while Brazil has raised rates by almost 10 percentage points this cycle and is still signalling more.

So Wall Street futures are flat after Monday’s slide while Europe is lower. Brent crude is almost at $120 a barrel. And listen out for raft of Fed and ECB speakers later in the day.

Key developments that should provide more direction to markets on Tuesday:

-Alibaba raises buyback programme to $25 billion

-BOJ’s Kuroda renews powerful easing pledge

-ECB speakers: board member Fabio Panetta, Vice President Luis de Guindos, Chief Economist Philip Lane

-Fed speakers: New York President John Williams, Cleveland President Loretta Mester, San Francisco Fed’s Mary Daly

-Philadelphia issues Nonmanufacturing Business Outlook Survey

-Hungary to deliver 100 bps rate rise

Graphic: Inflation: https://fingfx.thomsonreuters.com/gfx/mkt/klvykjkzgvg/Pasted%20image%201647936128472.png

(Reporting by Sujata Rao; editing by Saikat Chatterjee)

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