Still too hot
A look at the day ahead from Danilo Masoni. The return of U.S. inflation to more bearable levels is not going to happen overnight so those who were hoping for a clear signal that price pressures had peaked got disappointed.
April's hot consumer price data did leave bets of aggressive Fed tightening broadly intact and with them the spectre that a hard landing for the world's top economy may become unavoidable.
The fall of the headline figure to below the 40-year peak did provide some comfort, helping world stocks, already flirting with bear market territory, regain some footing after an initial kneejerk plunge. But that bounce was short-lived.
The Nasdaq fell over 3%, logging its worst five-day drop since March 2020. Asian shares absorbed the pain with a 2.5% drop to almost 2-year lows and European equity index futures are pointing to an ugly day ahead.
The risk of a recession also reversed the spike in Treasury yields which now look set to fall further this morning while the only winner appears to be the dollar which has rocketed to a new 20-year peak. A Wall Street fear gauge is above 30 for a fifth consecutive day.
Meantime, finance ministers and central bank governors from Japan, China and South Korea warned of risks to Asia's economic recovery from the COVID-19 pandemic and from early interest rate rises "in some advanced nations".
Oil too is down. Cryptocurrency markets are in meltdown mode with so-called stablecoin TerraUSD collapsing and Bitcoin falling below $27,000 to give up its 2021 gains.
Positive soundings from the earnings season in Europe may do little to save the day. Analysts now see profit growth north of 40%, up from around 20% forecast two months ago, per Refinitiv I/B/E/S data.
Key developments that should provide more direction to markets on Thursday:
- Britain's economy shrank by 0.1% in March but expanded by 0.8% in Q1 in what is likely to have been a high point for 2022 as the cost of living crisis increasingly bites
- San Francisco Fed President Mary Daly
- U.S. President Joe Biden will host leaders of the Association of Southeast Asian Nations (ASEAN) at a summit in Washington (to May 13)
- G7 Foreign Minister meeting
- Final U.S. PPI/initial jobless claims
- U.S. Treasury 30-year bond auction
- U.S. earnings: Alibaba, Motorola
- European earnings: Aegon, Allianz, BT, KBC Groep, Merck, Prysmian, Prosiebensat, RWE, Siemens
US CPI Link
Reporting by Danilo Masoni; Editing by Saikat Chatterjee
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