© Reuters. FILE PHOTO: A worker is reflected in a wall of the Reserve Bank of Australia (RBA) head office in central Sydney, Australia, March 1, 2016. REUTERS/David Gray
A look at the day ahead from Sujata Rao.
Another central bank has opened the door to earlier interest rate hikes than flagged. Australia officially ditched its 0.1% target for three-year debt and omitted projections for rates to stay unchanged until 2024 at least. Markets are keeping up pressure on the RBA, pricing rates to rise from next May.
The RBA sets the stage for the U.S. Fed, BoE and the Norges Bank later this week, with markets already pricing multiple rate hikes in the coming year given rising inflation.
But…stock markets don’t seem unduly perturbed. MSCI’s global index is back to record highs hit nearly two months ago and Wall Street is scaling new record peaks.
Leaving aside Monday’s 8.5% jump in Tesla (NASDAQ:TSLA), so-called value stocks outperformed, indicating possibly that recent “curve flattening” momentum on bond markets is abating. Indeed, the spread between two-and 10-year U.S. yields is 10 basis points wider than last Thursday.
Several analysts, including those at JPMorgan (NYSE:JPM), see recent bond and money market moves as technically driven and expect normalcy to return. They advise buying more cyclical stocks to position for higher longer-dated yields. Watch this space.
Meanwhile, inflation is marching higher almost everywhere; South Korean price growth accelerated to a decade peak, staying above-target for the seventh straight month. High prices slowed U.S. manufacturing in October, the closely watched ISM survey showed on Monday. It also hinted at some moderation in demand.
What’s helping stocks stay aloft is of course the earnings season. CEOs may be bemoaning cost pressures, yet there’s no sign of margins being hit. U.S. Q3 earnings are expected to have climbed 39%, Refinitiv IBES says, versus the original Q3 prediction for 29% growth.
And then there’s M&A — $4.7 trillion in deals have been announced year-to-date, according to Refinitiv.
(For graphic on ISM – https://graphics.reuters.com/USA-STOCKS/jnvwewmdjvw/ISMPMI.png)
Key developments that should provide more direction to markets on Tuesday:
-StanChart Q3 profit doubles as bad loans shrink, trade finance booms
-BP to repurchase another $1.25 billion of shares by early 2022, after buying $900 million in Q3
-Shipping group Moller-Maersk said record-high freight rates boosted earnings despite lower container volumes due to port congestion
-U.S. earnings: Dupont, ThomsonReuters, Estee Lauder (NYSE:EL), Pfizer (NYSE:PFE), ConocoPhilips, Ralph Lauren (NYSE:RL), T-Mobile, Mondelez (NASDAQ:MDLZ), Western union, Prudential (NYSE:PUK)