Weekly Comment – Risk appetite returns but China GDP could revive slowdown fears

Stocks staged a mid-week comeback after fears about surging inflation and worsening supply shortages had pummelled risk assets. But easing concerns have put a stop to the spike in government bond yields, with USD also pulling back. However, those fears could quickly return as a raft of inflation and PMI data are on the way and China reports its GDP numbers.

The highlights:
  • China’s economy will be in the spotlight on Monday as GDP figures are expected to show growth slowed in Q3. The data could set the tone for the week as the energy crisis spreads to more countries and supply constraints have knock-on effects on manufacturers globally. AUD could take a hit if growth disappoints.
  • Inflation will be watched in Canada, Japan, New Zealand and the United Kingdom. Stronger-than-expected CPI figures could boost GBP, CAD and NZD as the respective central banks could turn more hawkish. But JPY is unlikely to get much of a boost as the BoJ is nowhere near policy normalization.
  • Soaring energy prices and supply disruptions are increasingly weighing on businesses in Europe. The flash PMI readings for October are due on Friday and will likely point to slowing activity. EUR could suffer from weak numbers but expectations of an early BoE rate hike would probably prop up GBP.
  • There will be a lack of drivers for USD next week. Still, the currency could come in demand if markets go back in risk-off mode. Stocks, though, could see their rebound cut short if there is fresh panic.
  • However, it’s hard to see the rally in OIL and metal prices such as COPPER ending anytime soon even if sentiment remains fragile.

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