Marketmind: What if transient isn’t so transient after all?

The Federal Reserve Building on Constitution Avenue is pictured in Washington, USA on March 19, 2019. REUTERS / Leah Millis

A look at the day ahead from Dhara Ranasinghe.

The US Federal Reserve is sticking to the mantra that inflation is transient and there is no rush to tighten policy, but others feel uncomfortable.

Michael Saunders became the Bank of England’s second rate fixer in two days on Thursday to signal that it may be time to consider curbing stimulus as inflation rises. Earlier this week, the central banks of Canada and New Zealand took action to reverse post-crisis stimulus. Read more

It’s no surprise, then, that two-year gilt yields jumped 6 basis points after Thursday’s BoE commentary in the largest single-day rise since February. In contrast, US bond yields continue to be blocked by the conciliatory rhetoric of Fed chief Jerome Powell.

But another solid set of data could also test the Fed’s resolve; Figures due later this session are expected to see June retail sales in the US increase in June after declining in May.

In the meantime, the stock markets are struggling to keep their cool in the face of a continued rise in coronavirus infections around the world.

Japan’s benchmark Nikkei stock average fell below the psychologically key 28,000 mark and the MSCI Asian stock index, excluding Japan, was last 0.3%.

European and US equity futures were mixed.

The dollar was heading for its best weekly gain in about a month, supported by investors drifting towards safety.

Oil prices were a bit weaker, remaining under pressure after a compromise deal between major OPEC producers and a surprisingly poor weekly reading of fuel demand in the United States.

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

– The BOJ reduces its growth forecasts and unveils its climate plan read more

– Ericsson (ERICb.ST) T2 profit lower than market estimates; Burberry Announces “Great Start” to New Year, With Accelerating Full-Price Sales; Puma raises its outlook for 2021 Read more nASN001G8Y]

– German car registrations

– Data on sales of US bonds

– Federal Reserve Events: New York Fed Chairman John Williams speaks

– US profits: State Street, Honeywell, General Electric

– European results: Sandvik, Adtech, Husquarna, Handelsbanken, Swedbank, Richemont trading statement,

-Fitch to review the Greek note

Reporting by Dhara Ranasinghe; Editing by Sujata Rao

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