Markets are roiled by new COVID-19 concerns as we approach year-end. Data points might be what ignites bond market turmoil. An explosion in U.S. employment print may provide fodder for those who believe central banks must speed up the unwinding of stimulus.

The week ahead for markets in Singapore is here: Dhara Ranasinghe Karin Strohecker, Ahmad Ghaddar and Ahmad Ghaddar in London. Ira Iosebashvili as well as Lewis Krauskopf and Lewis Krauskopf are in New York. Sujata Rao compiles the information.

1/DOVES, HAWKS & COVID

Inflation data and COVID-19 concerns are looming over policymakers, who must decide in three weeks the fates of two ECB bond buying schemes.

Tuesday brings November flash euro zone inflation. It was 4.1% in October and many expect it to stay above the 2% target by next year. CPI data for German, Spanish, and French are available Monday and Tuesday.

As inflation surges, ECB hawks warn against https://www.reuters.com/markets/us/case-ecb-action-will-be-stronger-if-inflation-trends-persist-makhlouf-2021-11-23 keeping monetary policy too loose for too long. A new German government meanwhile could raise the minimum wage https://www.reuters.com/markets/europe/europes-big-payday-remains-elusive-even-inflation-surges-2021-11-25 by around 25%.

The message resonated with volatile markets. But resurgent COVID https://www.reuters.com/world/europe/german-support-grows-mandatory-vaccines-cases-jump-2021-11-24 strengthens the ECB doves https://www.reuters.com/markets/rates-bonds/ecbs-panetta-calls-continued-bond-buys-amid-lasting-pandemic-2021-11-24 as Europe battles a fresh surge and news of new virus variant spreading across South Africa https://www.reuters.com/business/healthcare-pharmaceuticals/south-africa-detects-new-covid-19-variant-small-numbers-2021-11-25triggers alarm.

Investors have retracted their rates-hike bets regarding the U.S.A, UK and euro zone due to renewed economic uncertainty. It appears that the doves have new ammunition to fight those who want an immediate end to stimulus.

2/JOBS FOR ALL

An encouraging November employment report might help to support those who believe the Federal Reserve’s $120-billion-a-month bond buying should be ended sooner. https://www.reuters.com/markets/us/investors-bet-powells-fed-will-get-more-aggressive-inflation-2021-11-23

While the Fed projects the unwinding to be complete in mid-2022, robust economic growth and inflation https://www.reuters.com/markets/us/us-consumer-spending-surges-october-inflation-heats-up-again-2021-11-24 running at more than twice the 2% flexible average goal have sparked bets on a faster unwind and earlier rate rises.

Payroll expectations were boosted by weekly data showing jobless benefits claims at the lowest since 1969 https://www.reuters.com/markets/us/us-weekly-jobless-claims-drop-51-year-low-q3-growth-revised-slightly-up-2021-11-24. Employers are forecast to have added 563,000 jobs, and any figure more than that could revive recent bond market ructions https://www.reuters.com/business/flexible-inflation-targets-recipe-bond-market-turbulence-2021-11-10 and mean another leg higher for the dollar.

3. TURKEY TANTRUM

Turkey served (another reminder) that prudent monetary management is important, even more in emerging markets during high inflation.

Turkey’s President Tayyip Erdogan reiterated his belief that rates can be cut to reduce inflation by double-digit levels. The lira has responded with a 15% plunge on Tuesday that’s left it in unchartered waters https://www.reuters.com/markets/europe/erdogan-unbowed-by-critics-leaving-little-stopping-liras-collapse-2021-11-24.

The currency has partly recovered https://www.reuters.com/world/middle-east/turkish-lira-drops-3-towards-record-low-policy-worries-2021-11-24 but the central bank may deliver another rate cut at its Dec. 16 meeting.

Mexico’s monetary policy woes are also raging. The peso has taken a hit after the president unexpectedly ditched his nominee for central bank governor https://www.reuters.com/markets/us/mexican-president-picks-finance-official-run-central-bank-would-be-first-woman-2021-11-24, instead nominating a deputy finance minister.

Emerging market central banks have little to no room for error when there is a strengthening dollar and rising inflation.

4. MORE OIL, OR LESS

The OPEC+ oil producers’ group has stuck to monthly output increases of 400,000 barrels per day (bpd) since August, defying consumer nations’ pleas https://www.reuters.com/business/energy/asia-looks-spr-shock-treatment-high-oil-prices-after-us-request-2021-11-18 for more oil to cool $80-plus prices. Its Dec. 1-2 meeting will come just after the U.S. decision to release 50 million barrels of oil from strategic reserves https://www.reuters.com/markets/commodities/us-set-unveil-emergency-oil-release-bid-fight-high-prices-2021-11-23.

The prospect of extra oil hasn’t fazed oil markets https://www.reuters.com/markets/commodities/oil-prices-stabilise-after-wild-swings-prospect-crude-stockpiles-release-2021-11-19; Goldman Sachs (NYSE:) called it a “a drop in the ocean”. Despite this, an OPEC+ source indicated that oil released by several countries and the United States would cause problems in its calculations.

OPEC+ will reduce production by 3.8 million bpd, or 4%, by December 31st. Sources claim that there have not been any discussions about how to respond to the U.S.’s decision by halting production increases. But the group has warned the move could cause an oil glut https://www.theglobeandmail.com/business/industry-news/energy-and-resources/article-opec-expects-us-led-spr-oil-release-to-swell-a-surplus-next-year next year.

5/SLOW but steady? New mortgage growth https://www.reuters.com/article/china-economy-loans-idUSKBN2HV0YO is underpinning hopes the trough might be in for Chinese credit, and that the economic drag from a feared real estate calamity is starting to fade.

It is possible to see a shift towards policy easing. While benchmark rates have not changed, banks are being prodded https://www.reuters.com/markets/us/some-chinese-banks-told-issue-more-loans-property-projects-sources-2021-11-22 to lend to developers, authorities are seeking to cut funding costs https://www.reuters.com/markets/rates-bonds/china-cbank-lower-corporate-funding-costs-aid-small-firms-2021-11-23 for small business and have moved to buttress yuan stability https://www.reuters.com/markets/us/exclusive-china-fx-regulatory-body-proposes-cap-banks-prop-trading-sources-2021-11-19.

The Tuesday Purchasing Managers’ Indexes may show that the tide might be turning. But keep an eye on Dalian https://www.reuters.com/world/china/china-faces-biggest-delta-outbreak-infections-grow-northeastern-city-2021-11-15, where COVID is on the rise

(1 euro = 14.0991 liras)