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Time to expect inflation By Reuters


© Reuters. FILEPHOTO: The King of Prussia Mall is the largest US retail space. This photo was taken in King of Prussia (PA), USA, on December 8, 2018. REUTERS/Mark Makela/File Photo

A look at the day ahead from Sujata Rao

It’s only Tuesday but ten-year Treasury yields are already up 8 basis points this week, leading a global move up in government borrowing costs after last week’s hawkish central bank chorus.

The move in inflation breaksevens is even more fascinating, as they reflect the bond market’s expectations for future price growth. The U.S. ten-year breakevens grew by almost five bps yesterday, and have increased 10 bps over the last week. These moves are also being observed across most of the advanced world including Britain and Germany.

It’s probably not all that surprising, given the spreading energy shortages and gas price spikes that have rapidly fed into markets, taking above $80 a barrel.

The fear is growing that the seepage of this energy into the rest of the economy will cause more problems. For example, China’s current power shortages may have halted some factories. This could also impact the global supply chain.

The yield rises have not been enough to stop the TINA narrative, which has helped stocks rally. European markets look stronger, even though Wall Street futures have fallen. The Nasdaq is the worst affected as tech-heavy stocks are more vulnerable to yield rises.

On Tuesday, we get the chance to hear from a variety of policy heavyweights including Fed Chair Powell, Andrew Bailey of Bank of England and Christine Lagarde of ECB.

China’s PBOC, however, has managed to ease the situation by promising to assist homeowners. This lifted Hong Kong shares and mainland-listed shares. It also included property companies that were badly affected by Evergrande’s problems.

Could the United States also be heading for default?

Three days remain before U.S. government funding ends and one month to go before Treasury runs dry of borrowing capacity, so the Senate didn’t approve Monday a bill to suspend the debt limit. The debate continues.


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

-Chinese industrial firms’ profits slowed for a sixth consecutive month

-Britain put the army on standby to deliver fuel

-ECB President Christine Lagarde speaks

-Fed Chair Jerome Powell addresses Senate Banking committee

-U.S. Treasury Secretary Janet Yellen speaks

-Emerging markets: Morocco, Kenya central bank meetings

-German consumer sentiment

-BOE consumer credit

-U.S. business and consumer inventories

-Auction: 7-year Treasury auction

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