The Morning Show: It’s all about inflation

A look at the coming day in the European and international markets from Anshuman Daga

Markets are back to watching inflation. Just as global economic growth concerns ease and labor markets remain tight, price trends have become a major focus for investors.

A series of strong US economic data reinforced the view that interest rates will remain high for longer.

The latest clue came in the personal consumption expenditures price index, the Fed’s preferred measure of inflation, which rose 0.6% last month after rising 0.2% in December.

In Europe, preliminary February inflation data from Germany, France, Spain and Portugal are due on Monday and Tuesday, followed by a flash number for the euro bloc on Thursday.

Although headline inflation has eased in the Eurozone, there is a growing realization that it may prove more resilient than previously anticipated.

ECB officials do not rule out that interest rates may need to rise significantly beyond March.

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Traders are now pricing in another 75 basis points of moves in the 20-country eurozone before summer ends.

Reuters graphics
Reuters graphics

On Monday, negative sentiment affected Asian markets. The benchmark index fell 1% to its lowest level since early January. The dollar hovered near its highest level in seven weeks, while US Treasury yields rose.

Incoming Bank of Japan Governor Kazuo Ueda said the benefits of the bank’s current monetary policy outweigh the costs, stressing the need to maintain support for the country’s economy with ultra-low interest rates.

This week, European investors will also digest results from the likes of Lufthansa, fund manager Abrdn, the London Stock Exchange and Telefonica.

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Meanwhile, jittery markets are watching any new developments on the Russia-China front after the US said any lethal aid from China to Russia would come with “real costs”.

Republican Representative Michael McCaul said Chinese leader Xi Jinping is preparing to visit Moscow next week to meet with Russian President Vladimir Putin.

On the corporate front, this week at the world’s largest telecoms conference, a clash between big tech and EU telecoms companies over who will secure the network infrastructure is set to dominate the debate in Barcelona.

Key developments that may affect the markets on Monday:

European Economic Data: Eurozone Consumer Confidence for February, German CPI for February

US Economic Data: Durable Goods Orders for January

(Reporting by Anshuman Daga) Editing by Simon Cameron Moore

Our standards: Thomson Reuters Trust Principles.

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