Central banks are hell-bent on shattering investors’ illusions

Rising Covid cases in China hit investor sentiment yesterday, but better news came overnight, with Chinese authorities pledging to boost elderly vaccination rates. In addition, Covid cases fell for the first time in a week. This lifted Asian and European markets today, while Wall Street opened flat.

After the positive results of the previous week, Monday was rather a bad day for equity markets, as investors worried about Chinese growth. All of Europe fell, and Wall Street tumbled. The three main US indexes lost about 1.5%, weighed down by oil stocks as crude prices dropped. Apple also lost 2.4% after reports that labor unrest at Chinese assembler Foxconn would cut iPhone production by several million units in the coming weeks.

China was not the only reason for this poor performance. Several Fed officials spoke yesterday, and they were not exactly happy, even the ones who normally give hugs. John Williams sees higher rates than he previously thought. James Bullard, the ultra-hawk of the moment, reiterated that the market shouldn’t be so confident about the path of inflation. Lael Brainard warned against being overly optimistic about price movements and Loretta Mester went even further by saying that there is no pause on the path to higher rates. If this isn’t a killjoy communication campaign, it sure sounds like one. As we know, the Fed orchestrates, with or without John Williams, the message it wants to send to the market, using public speeches by officials to refine it. Fed chair Jerome Powell is due to speak tomorrow.
In Europe, Germany today posted lower inflation data in the wake of Spain and Belgium, fuelling hopes that the European Central Bank would soon ease the pace of interest-rate hikes. Consumer prices in the country climbed 11.3% from a year earlier in November, in line with expectations, down from October’s 11.6% increase,
However, Christine Lagarde is not letting her guard down, as the ECB boss clearly indicated yesterday that inflation has not yet peaked in the euro zone…

In Europe, the November business confidence index in Europe and the first estimate of German inflation in November. In the US, the November house price index and the Conference Board consumer confidence index.

The dollar is up 0.1% against the euro to EUR 0.9680 and down 0.1% against the pound to GBP 0.8345. The ounce of gold is holding steady around 1750 dollars. Oil bounces back, with North Sea Brent crude at USD 85.59 per barrel and US WTI light crude at USD 78.60. The yield on 10-year US debt rises to 3.71%. Bitcoin is trading around 16,400 dollars.

(https://www.marketscreener.com/)