Morning Bid: How far behind the curve exactly?

Banka Intesa Sanpaolo dd

09/05/2022 08:02

A look at the day ahead in markets from Julien Ponthus. 
  
On Friday, St. Louis Fed President James Bullard argued that the
U.S. Federal Reserve is "not as far behind the curve as you
might have thought".  urn:newsml:reuters.com:*:nL2N2WY2PI  
    With inflation running over 6%, the jury is out on whether
last week's 50 basis point rate hike is catching up with the
curve or falling woefully behind. 
    But while the terminal U.S. rate pricing solidifies around
3.5% in mid- 2023, only time will tell whether the Fed's
aggressive plan to hike rates this year will tip the economy
into recession or not. 
    Equally, the pace of interest rates hikes is already
fuelling recession fears in Britain where the BoE warned that
dealing with an inflation over 10% will have dire consequences
for the economy.
    In the meantime, the world must now cope with fast-rising
bond yields and a surging greenback.
    The dollar hit a two-decade high this morning as investors
turned to their favourite safe haven as the war in Ukraine and
COVID-19 lockdowns in China continued to weigh on global growth.
    This morning's data showed China's export growth slowed to
its weakest in almost two years.  urn:newsml:reuters.com:*:nL2N2X106O 
    These growth concerns may deter central banks, especially in
Europe and Japan, to tighten policy in line with the Fed. 
    A number of currency strategists have already flagged the
risk of seeing the euro go below parity with the dollar while
the yen is trading towards levels unseen in about two decades.
    The mood is also worsening across stock markets as the rise
in yields of 'risk-free' government bonds dent the appeal of
wobbly risk assets. 
    U.S. stocks marked their fifth consecutive weekly drop last
week -- its worst run since 2011. 
    The Nasdaq is down about 25% from its peak in November when
the 'transitory inflation' narrative was officially ditched by
central bankers.
     After four consecutive weekly losses, European stock
markets are set to begin cash trading yet again in the red this
morning.

Key developments that should provide more direction to markets
on Monday: 

-Chipmaker Infineon raises 2022 revenue outlook after results
beat  urn:newsml:reuters.com:*:nL5N2X10OJ
-G7 to phase out Russian oil, U.S. sanctions Gazprombank execs
over Ukraine war  urn:newsml:reuters.com:*:nL2N2X00AE
-China's exports growth hits 2 year-low as virus curbs hit
factories  urn:newsml:reuters.com:*:nL2N2X106O
-Japan's service sector activity posts first growth since Dec -
PMI  urn:newsml:reuters.com:*:nZRN004CMX     
-Indonesia's economy stays on growth path in Q1 as price
pressures loom  urn:newsml:reuters.com:*:nL2N2WX1GS    
-Bitcoin falls to lowest since January, in line with tumbling
stock markets  urn:newsml:reuters.com:*:nL2N2X107A         
    

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FEd funds and dollar    https://tmsnrt.rs/3ygyWV5
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 (Reporting by Julien Ponthus; Editing by Saikat Chatterjee)
 ((Dhara.Ranasinghe@thomsonreuters.com; +442075422684;))