Morning bid: why the calm in the markets does not last

A look at the day ahead at the markets of Dhara Ranasinghe.

Last week’s market turmoil, which led to the biggest weekly decline in global equities since March 2020, has given way to a measure of calm. But don’t bet it’s permanent.

In short, until there are clear signs that inflation in major economies is falling from decades-long highs, allowing central banks to step off the monetary tightening pedal, volatility will remain in place.

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News late Monday that IG Metall, Germany’s most powerful trade union, wants to implement wage increases of between 7% and 8% in a forthcoming round of negotiations, is a reminder that price pressures are mounting. No wonder that led to a late sell-off in European bonds.

Yields in US bond markets, which were closed on Monday for a holiday, are moving higher in early trading in London.

And note this comment from ECB chief Christine Lagarde, who spoke late Monday. She said the risk of an abrupt correction in the financial and housing markets in Europe is high, adding that risks to financial stability “have increased noticeably” since the start of the year.

Some fear that the sharp sell-off in global markets is tightening financial conditions faster than expected, raising the risk of a sharp economic slowdown.

For example, financing costs for investment-grade companies in the euro area have risen above 3% for the first time since June 2012, with yields doubling in less than three months, estimates Axa Investment Managers.

However, some central banks are resisting the idea of ​​overly aggressive rate hikes. Philip Lowe, head of the Australian central bank, signaled more policy tightening on Tuesday, but downplayed the chances of a 75 bp move. read more

Asian stocks are higher, as are US and European stock futures. And there is also a reprieve for Bitcoin, which is above $20,000 and has not fallen sharply below the psychologically significant level in recent days.

MSCI World Stocks Index, Weekly Movement

Key developments that should give more direction to the markets on Tuesday:

– Japanese Prime Minister Kishida prefers BOJ to keep policy easy

– UK wage agreements remain at 4% as inflation picks up: XpertHR read more – ECB banking supervisor Andrea Enria; Olli Rehn

– German Finance Minister Christian Lindner speaks

– Philadelphia Fed Releases Non-Manufacturing Business Outlook Survey for June

– US existing home sales

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Reporting by Dhara Ranasinghe; edit by Sujata Rao

Our standards: The Thomson Reuters Trust Principles.

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