A look at the day ahead from Saikat Chatterjee.

The world markets are still on edge Friday due to simmering worries about China Evergrande Group’s fate and an unexpected spike in bond yields. Investors will need to be aware that 2021’s final quarter is going to be difficult.

After U.S. stocks saw their largest two-day increase since July, European and U.S. stock markets fluctuated between gains or losses.

The majority of the gains could be attributed to the easing of Evergrande contagion worries, but Thursday’s surge in yields from the global $60 trillion+ government debt markets on Thursday increased the likelihood of tighter monetary policy.

Long-term U.S. Treasury yields have surged the most in 18 months as traders brought forward expectations for the first Fed rate hike to the end of 2022 and the Bank of England opened the door to a 2021 rate increase — sparking the biggest jump in two-year UK gilt yields since March 2015.

In response, yield curves from Australia-Germany grew more steeply and the dollar reached the peak of its 2021 trading range. While it remains to be seen whether the rise in yields can be sustained, some signs of weakness can be detected in the “buy the dip” trade from investors.

On Thursday, value stocks outperformed growth stocks while FAANG stocks outperformed the wider markets this month. If investors expect a peaceful weekend, they should think again.

The election of Chancellor Angela Merkel, who has served 16 years as Germany’s leader in the European powerhouse economy Germany, will offer some food for thought.

She will be replaced by a successor who will shape EU and domestic policy. Her new position will also allow her to guide Germany’s economy in a post-COVID uncertain environment.

Flash PMIs released Thursday for September showed a marked slowdown in economic activity compared to the preceding month. This was due to rising energy costs and difficulties in sourcing parts, which are headwinds that will not abate in coming days.

Key developments that should provide more direction to markets on Friday:

– ECB’s Lagarde says many causes of inflation spike temporary: CNBC

– Nike (NYSE:) warns on holiday delays, cuts full-year sales estimate

– Daimler (OTC:)’s Mercedes-Benz to take a 33% stake in battery cell manufacturer Automotive Cells Company

– Germany’s IFO survey for September

– Fed speaker corner: Powell, Clarida (Graphic: Bond Yields – https://fingfx.thomsonreuters.com/gfx/mkt/klpykgjeapg/bond%20yields.JPG)