Bonds drop as inflation cheer fades

Bonds drop as inflation cheer fades

Putting the Cork Back in the Champagne Bottle

A Look at the Day Ahead in European and Global Markets

How do you put the cork back in a bottle of champagne? Perhaps ask your friendly bond dealer, as traders in the world’s deepest market quickly got over their excitement at steadying inflation, which held at 0.2% month-on-month.

Maybe markets were hoping for a surprise on the downside. Maybe a much bigger-than-expected budget deficit frightened prospective buyers, who stayed away at Thursday’s 30-year Treasury auction and left the Street holding the paper.

Primary dealers took their largest slice of the sale since February. Yields went up along the curve, even if markets took the risk of another rate hike next month down a little. Stocks gave up gains and might be in need of a new source of optimism.

Data is driving markets’ fine-tuning of the rates outlook and today’s batch brings British growth data at 0600 GMT, which is expected to show annual growth inched along at 0.2% last quarter, and U.S. producer prices and consumer confidence data.

In Asia, Treasuries went untraded as Tokyo desks closed for Mountain Day – a public holiday aimed at enjoying mountains.

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Yet the U.S. dollar held gains made overnight and took the yen back near levels that prompted intervention last year.

Joe Biden had overnight called China a “ticking time bomb” because of its economic challenges. Stocks there were back under pressure during Friday, with Alibaba (9988.HK) handing back gains on its solid result and property stocks sliding.

China’s largest private property developer Country Garden (2007.HK) is the focus of worry presently, as it struggles to make coupon payments, and its shares plunged to a record low on Thursday after the company forecast a $7.6 billion loss for the first half.

In Australia, a closely-watched dispute at major gas fields deepened with the national labour regulator allowing workers at two Chevron (CVX.N) facilities to vote on whether to strike.

The prospect of disruption there and at another Woodside (WDS.AX) facility, which together account for 10% of the liquefied natural gas market, has lately roiled prices in Europe.

Outgoing Aussie central bank chief Philip Lowe, meanwhile, struck a dovish tone in an appearance before lawmakers saying recent data is consistent with the economy finding the “narrow path” to falling inflation without significant increases in joblessness.

Lowe’s term ends in about a month when he hands over to deputy Michelle Bullock, and he said his focus would switch to lowering his golf handicap.

Key Developments That Could Influence Markets on Friday

British GDP

At 0600 GMT, British growth data is expected to show annual growth inched along at 0.2% last quarter. This modest increase comes after the excitement in the market at steadying inflation. Perhaps the markets were hoping for a surprise on the downside, or maybe the bigger-than-expected budget deficit unsettled prospective buyers. The need for a new source of optimism for stocks is becoming apparent.

U.S. Consumer Confidence

The release of U.S. consumer confidence data will give insight into the sentiment of the American consumer. With ongoing concerns about inflation and a volatile market, understanding consumer confidence provides valuable information for traders and investors.

U.S. PPI

The U.S. producer prices index (PPI) is another significant indicator of inflation. The PPI measures the average change over time in the selling prices received by domestic producers for their output. As the market closely watches inflation, the PPI plays a crucial role in determining market trends.

In Asia, Treasuries went untraded as Tokyo desks closed for Mountain Day, a public holiday aimed at enjoying the beauty of mountains. Despite the absence of trading in Asia, the U.S. dollar held onto its gains made overnight and brought the yen back to levels that prompted intervention last year.

Joe Biden’s recent statement referring to China as a “ticking time bomb” due to its economic challenges has increased pressure on Chinese stocks. Alibaba, for instance, handed back its gains, and property stocks experienced a slide. The focus of worry in China currently lies with Country Garden, the largest private property developer, as it struggles to make coupon payments. This struggle caused its shares to plunge to a record low after forecasting a $7.6 billion loss for the first half of the year.

The situation is also tense in Australia, with a labor dispute deepening at major gas fields. Workers at two Chevron facilities have been allowed to vote on whether to strike, raising concerns about disruptions in the liquefied natural gas market. This tension, alongside another dispute at a Woodside facility, has roiled prices in Europe.

Outgoing Australia central bank chief Philip Lowe took a dovish stance in his recent appearance before lawmakers. He stated that recent data is consistent with the economy finding a “narrow path” to falling inflation without substantial increases in joblessness. With his term coming to an end, Lowe’s focus will shift to improving his golf handicap.

The day ahead in European and global markets is filled with various events and data releases that will likely shape investor sentiment. From British GDP and U.S. consumer confidence to the ongoing developments in China and Australia, traders and investors will closely monitor these key factors. Ultimately, these market dynamics will determine the future direction of stocks and financial instruments around the world.

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