Marketmind: Trade-offs -Breaking
Sujata Rao gives a look at tomorrow’s markets
The cost of manufacturing goods is rising, but so are the transport costs. Shipping a 40-foot container by sea will still be six times more expensive than it was a year ago, according to the Freightos Index.
According to the International Monetary Fund(IMF), this increase will be 1.5 percentage points in 2022 inflation. However, the IMF warns that prices will rise only 12 months later.
According to the IMF, this causes central bankers to make “complicated tradeoffs”.
Perhaps not. Markets are betting that policymakers will decide to curb inflation even if it means economic growth is affected. End-2022 is the date that more than 200 basis points are expected to be added by the U.S., making it one of most significant rate increases in a calendar-year since 1994. Deutsche Bank Points out.
In any case the gap between 10- and 2-year Treasury yields looks set to turn negative, with the difference falling below 6 basis points on Tuesday.
The so-called “curve inversion” is a predictor of recession. The Fed indicated that it is still watching curve segments that are steeper than they are, and will tighten its policy faster.
When do stocks markets become seriously scared? Two-year U.S. yields increased 165 bps in the third quarter, while the 2-10 curve snapped in at 70 bps. But world stocks have recently recouped some gains and will finish the quarter with just a minor loss.
Wall Street equity futures were positive on Tuesday. European stocks are up, as a result of Asian gains, which was aided by an increase in Tokyo’s 1%.
Most likely, they are focused on real interest rates. If you remove inflation, the 10-year yields will remain very negative. However “real”, yield curves tend to be sloping upwards.
There are key developments which should give more direction to the markets Tuesday
-BOJ intensifies fight to defend yield caps
-German consumer sentiment lowest since Feb 2021
ECB President Christine Lagarde; ECB Bank Supervisor Elizabeth McCaul; ECB Board Member Peter Kazimir
John Williams is the New York Fed president, Harker is the Philadelphia Fed president
Monthly US house price index, job openings at JOLTS, Consumer Confidence
-U.S. 7-year note auction
Chile raises interest rates 200bps to 7.5%
Graphic: Shipping costs – https://fingfx.thomsonreuters.com/gfx/mkt/jnvwekxmlvw/Pasted%20image%201648494211019.png
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