Marketmind: Inflation angst resurfaces

By Thomson Reuters Aug 17, 2022 | 5:21 AM

(Reuters) – A look at the day ahead in U.S. and global markets from Mike Dolan.

Investor hopes that global inflation is finally on the wane or that central banks can relax were thrown a curve ball by Britain on Wednesday even as oil prices continued to ebb.

With markets awaiting minutes from last month’s U.S. Federal Reserve meeting on Wednesday, double-digit UK inflation readings for July cut across the global ‘peak inflation’ narrative and suggest central banks may have to do more to control it.

UK consumer price rises topped 10% for the first time since 1982 – well ahead of forecasts, before fresh energy price hikes domestically and adding pressure for bigger Bank of England interest rate rises. While UK inflation had already been forecast to rise to 13% later this year, the strength of the price moves last month was jarring.

The fresh angst sent 2-year UK government bond yields to their highest in 14 years and spurred interest rate markets around the world, even in the United States. New Zealand’s central bank also announced its fourth consecutive half-point interest rate rise on Wednesday, with a promise of more rate rises to come there.

The British surprise adds to a series of conflicting signals on global inflation and growth – especially from the United States.

Tuesday’s U.S. soundings included dire housebuilding data for July but rapid growth in manufacturing and upbeat earnings readouts from retailers such as Walmart, whose stock jumped 4% as it upped its outlook while flagging deep discounting to clear inventories.

That all tees up Wednesday’s release of U.S. retail sales data for July and more retailer earnings from the likes of Target.

More soothing for inflation worriers was the ongoing decline in oil prices as Brent crude fell again on Wednesday to its lowest since before the Ukraine invasion in February.

Global demand worries and hopes of a revived Iran nuclear deal weighed on prices.

On the markets dashboard ahead of the open, S&P500 futures are a touch lower while U.S. Treasury yields and the dollar are firmer. The VIX index of equity market volatility remains subdued below 20. Asia and European stocks were mixed earlier, with Japan’s Nikkei outperforming and closing at its highest in seven months.

Key developments that may provide market direction on Wednesday:

* US Jul retail sales

* Fed releases minutes from July policy meeting – 1800 GMT

* US 20-year Treasury auction

* US earnings: Lowes, Target, Cisco

(Graphic: UK inflation rate hits double digits, https://graphics.reuters.com/BRITAIN-ECONOMY/INFLATION/lgpdwyqkjvo/chart_eikon.jpg)

(Graphic: US vs Euro zone inflation, https://fingfx.thomsonreuters.com/gfx/mkt/mypmnexrevr/One.PNG)

(Graphic: Forecast for 2022 oil demand, https://graphics.reuters.com/GLOBAL-OIL/egvbkdqwbpq/chart.png)

(By Mike Dolan; Editing by Toby Chopra)