Marketmind: Grinch (re)appears

5:13 am Friday, December 23rd, 2022

A look at the day ahead in European and global markets from Ankur Banerjee

Ignoring a hawkish Fed, investors attempted the briefest of Santa rallies this week but revised U.S. GDP data and relatively low claims for unemployment benefits have brought back worries of higher-for-longer interest rates.

And so the safe-haven U.S. dollar is back on the prowl, with Asian shares set to end in the red for a second straight week.

Investors will now focus on U.S. personal consumption expenditures data, due later on Friday, which will provide more clues on the direction of inflation as traders look ahead to 2023.

Some are clinging to the hope that central banks will likely pause interest rate hikes next year in the face of an economic slowdown.

But as Generali Investments strategists put it, central banks are still showing their teeth, committed to tackling inflation, and an outright policy pivot looks distant.

The yen managed to retain most of its gains against the dollar after the BOJ bombshell earlier this week, with data on Friday showing that Japan’s consumer inflation hit a fresh 40-year high, adding to pressure on the central bank to alter its ultra-easy policy.

GRAPHIC: Japan’s core inflation hits fresh 40-year high (https://www.reuters.com/graphics/JAPAN-ECONOMY/INFLATION/gdpzqqabavw/chart.png)

Meanwhile, COVID-19 infections in China are likely to hit their peak within a week, a health official said, as China’s health system prepares for a surge in cases weeks after the country began dismantling its zero-COVID policy.

The saga around the collapse of the FTX crypto exchange rumbles on, with Sam Bankman-Fried released on a $250 million bond package while he awaits trial.

In the corporate world, chip stocks slumped worldwide after Micron’s dour forecast on what the chipmaker called a “significant supply demand mismatch”.

Tesla CEO and Twitter owner Elon Musk said he will not sell any more Tesla stock for about two years, as the EV maker’s stock is on track for its worst-ever monthly performance.

GRAPHIC: Tesla percentage stock moves by month (https://www.reuters.com/graphics/USA-STOCKS/TESLA/zjvqjjmyypx/chart.png)

Key developments that could influence markets on Friday:

Economic events: Spain Q3 GDP data, France November producer price data

(Reporting by Ankur Banerjee; Editing by Anshman Daga and Edmund Klamann)