The mind of the market: moving towards a new stage in the fight against inflation

The mind of the market: moving towards a new stage in the fight against inflation

A look at today’s upcoming US and global markets from Dhara Ranasinghe.

An action-packed week has yet to begin for central banks around the world, and equity investors are expressing concern that large interest rate increases aimed at taming sticky inflation are making a global recession more likely.

US stock futures are down about 1% and in another harbinger of what Wall Street has in store, European stocks are in the red.

It turns out that a week is a long time in the world of banking and central markets these days.

The Federal Reserve is expected to raise interest rates by at least 75 basis points at the end of the two-day meeting on Wednesday to contain sticky inflation. But since inflation data last week showed underlying price pressures widening, some are even beginning to consider the prospects for a rare 100 basis point move.

In addition to the Federal Reserve, a host of other central banks – including those in Britain, Switzerland, Norway and Sweden – tend to tighten policy this week.

What remains, of course, is the BoJ meeting on Wednesday and Thursday, although it will be closely watched for any signs in language shifting that could reverse the yen’s slide near 24-year lows against the dollar.

And what does this mean? For starters, more dollar strength in the near term. The dollar was broadly strong against the other major currencies on Monday and just rose to a nearly two-year high against the Canadian dollar.

Second, more pain for risky assets as investors brace for a violent Fed that comes at the price of a sharp slowdown in growth.

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In addition to selling stocks, cryptocurrencies are under renewed pressure. Earlier to a three-month low of less than $19,000.

More geopolitical noise in Europe is adding to jittery nerves as markets prepare for elections in Italy on Sunday that may install a center-right government, while Hungary seeks to avoid losing billions of euros in European Union funding that the bloc may remove due to Budapest’s failure to fight. Corruption and upholding the rule of law.

An overnight holiday in Tokyo and a holiday in London for the Queen’s funeral means the trade is relatively quiet. But there is no doubt that the pessimistic tone in global markets remains firmly in place.

Graphic: More pain in stock for stocks?

Key developments that should provide further guidance to the markets on Monday:

UK markets closed due to the Queen’s funeral

Volkswagen shares (ETR:) with a slight rise in Porsche’s valuation in euros 70-75 billion

The German economy shrinks all winter because the gas taps are cut off, says the Bundesbank

– Enria says ECB wants banks to review capital plans in light of economic downturn

– US Housing Market Index for the month of September, NAHB

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