Economy

Marketmind: Mixed Inflation Signals

Marketmind: Mixed Inflation Signals

(Reuters) – A look at the coming day in Asian markets from Jamie McGovern

As the debate over inflation rages in the US, the signs are getting murky.

For investors, this makes the markets more volatile and difficult to predict daily moves, and makes forecasting the Fed even more difficult than it actually is.

On Wednesday, the headline reading of the US Services PMI for September was surprisingly strong, falling much less than expected to 56.7 from 56.9. The September ADP employment numbers were also stronger than expected.

On the other hand, the ISM Price Paid Index fell to 68.7 which is the lowest level since January last year. Tuesday’s “JOLTS” jobs data shows that jobs fell in August at the fastest pace in nearly two and a half years.

Oil prices rose on Wednesday after the Organization of the Petroleum Exporting Countries (OPEC) announced a massive production cut of 2 million barrels per day, yet the year-over-year rise in Brent crude – which factors in inflation forecasting models – is only 13%.

Chart: – Futures and Annual Changes – https://fingfx.thomsonreuters.com/gfx/mkt/mopanxyoava/OIL.png

Also this week, US equal inflation rates on inflation-linked bonds, from two- to 20-year maturities, fell to 2.15% – close to the Fed’s 2% inflation target – while University of Michigan consumer inflation expectations have also fell.

Four more Fed officials will appear on tapes on Thursday and hopefully shed some much-needed light on the inflation debate. Right now, investors seem to be eager for the Federal Reserve to make the switch, but aren’t entirely sure of its merit.

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Wall Street regained opening losses on Wednesday despite a sharp rise in Treasury yields to keep its strong start to the quarter on track. The 5.7% increase marked its best start to a new quarter in decades.

Key developments that could provide further guidance to the markets on Thursday:

India Services PMI (September)

Australian Trade Balance (August)

Unemployment in the Philippines (August)

Eurozone Retail Sales (August)

Fed Director Cook, Evans, and Walter speak

IMF Georgieva speaks ahead of IMF and World Bank meetings

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