In the next few days, the highest ranking members of China’s Communist Party will meet and vote for another term for President Xi Jinping.

U.S. inflation data may prove that the Federal Reserve views price pressures as temporary, but trade data and additional Q3 earnings by companies will indicate whether there are supply-chain issues.

1 PARTY TIME

China’s Communist Party is set to gather in Beijing and pass a historic resolution, allowing President Xi to be elected to a third term.

In 1945, Mao Zedong was made the supreme leader. The second resolution in 1981 laid the foundation for Deng Xioaping’s reform era.

This may indicate that Xi’s path to prosperity is ahead of him, away from rapid growth. Unlikely to be mentioned is the precarity of the moment https://reut.rs/3nUCYvv, with China’s growth engines sputtering and credit markets crumbling just as global monetary policy is in flux — caveat emptor.

(For graphic on Winner vs losers under Common Prosperity – https://fingfx.thomsonreuters.com/gfx/mkt/zgvomrozyvd/MR.GOLD-OWNERSHIP%20-%20Winners%20and%20losers%20under%20China’s%20Common%20Prosperity%20initiative.png)

2 PRICE GAUGING

    The U.S. consumer price index out on Wednesday, is forecast to have climbed 0.5% in October after a 0.4% rise in September as Americans paid more https://reut.rs/3wif94l for food, rent and other goods.

It remains to be determined if the price rise is temporary and a result of the recovery from the pandemic or if it signals a change in trend.

The Federal Reserve held its latest meeting believing that inflation will be “transitory”, even though global supply problems add to inflation risk.

Without provoking a market panic, it has been able to reveal a tapering off monthly bond buying without having to issue a statement. It could alter that with a stronger inflation print which renews talk of rate hikes.

(For graphic on Inflation on the rise – https://fingfx.thomsonreuters.com/gfx/mkt/klpykdeakpg/Pasted%20image%201635972322848.png)

3 TRADE CROSSROADS

The rise in consumer demand has fueled the trade recovery. Emerging economies have seen their exports rise, from raw materials, to semiconductors. Both price increases and shortages are a result.

However, trade could be facing a crisis. Economists believe that Western consumers will spend less on goods after COVID and more on dining out and travel. In early-2022, this could lead to inventories rising and cooling the goods trade.

On Sunday, data will reveal whether China’s power cuts have slowed down exports or if the cooling economy has harmed imports.

After August’s export volume drop, the U.S. is now in an unprecedented export slump. This means that Tuesday’s German data will have to be closely viewed. And, Taiwan’s semiconductor giant may report a 16th consecutive month of export growth Monday.

(For graphic on Trade boom – https://fingfx.thomsonreuters.com/gfx/mkt/zjpqkwjwlpx/Pasted%20image%201636101083109.png)

4./ BEAT IS ON

Next week, European blue-chips will report on financials Allianz. (DE:) Aviva (LON:), and Zurich Insurance.

European stock prices have never been higher, and this latest earnings report could be a trigger for new highs. From 47.6% two week ago, Q3 profits growth expectations have increased to 57.2%. So far 66% of companies are beating their estimates.

Stock market resilience is due to the fears of missing the recovery post COVID-19 and negative “real” bond yields. The question is, how long does this party continue? It is likely that the 2022 slowdown in the profit recovery from COVID-192020’s 2020 recession will result in a slower pace of growth.

(For graphic on European earnings estimates – https://fingfx.thomsonreuters.com/gfx/mkt/zjpqkwqgypx/Europe%20Inc%20earnings.PNG

5/ HIKES ON or OFF

Investors shifting between risk-on and risk-off are common causes of market shake-ups. Mixing things up is the rises-on/hikes-off mindset.

It’s not about central banks raising rates quickly (sell bonds and buy bank stocks), but it is about them holding off on tightening as much as they can (buy bonds, send stock to record highs)

After the major central banks stopped aggressive rate-hike bets, this view now dominates. By keeping its policy the same, Bank of England defied all rate-hike predictions.

However, there is still uncertainty about the rate outlook. This means that the fluctuation between “hikes on” and “hikes off” days may become the new norm. Expect more volatility.

(For graphic on Markets now in hikes on/hikes off mode – https://fingfx.thomsonreuters.com/gfx/mkt/myvmnkogepr/theme0511.png)