Central banks are heavily in focus on Wednesday as we get a bunch of inflation data from across the globe and hear from a number of policymakers whose views on the trend will set the tone for the markets.
Stock markets have been struggling to build on a strong earnings season recently as inflation and interest rates have topped the list of investors’ concerns over the coming months. Given how long that list has become and the other risks on it, that’s saying something.
Gone are the days when bad news (data) is good news and central bank inaction keeps the party going in equity markets. Investors are increasingly concerned about the levels of inflation that we’re seeing and how widespread it is.
That’s not to say they all believe it’s here to stay and that extreme levels are just around the corner, but the higher the numbers get, the more widespread it becomes and the longer it lasts, the greater the risk. Which is going some way to dampening the good vibes from earnings season which gave the impression that the economy is on a strong trajectory.
Sterling pops as UK inflation piles pressure on BoE
The pound initially popped higher on the back of the UK inflation figures this morning, which were higher across the board and surpassed expectations. Inflation rising to 4.2% from 3.1% and core up to 3.4% from 2.9% doesn’t make for easy reading, particularly for BoE policymakers that have backed themselves into a corner in recent months.
With the furlough scheme having seemingly come to a successful end without any significant jump in unemployment, as per the data yesterday and comments earlier this week, and inflation running hotter than expected, the MPC may have run out of excuses. There will be another labour market and inflation report next month in the days before the meeting but I struggle to see how policymakers can get out of this one.
Eurozone inflation in line and temporary
There were no surprises in the euro area inflation readings, with the headline number remaining at 4.1% and the core number actually slipping slightly to 2%. While markets appear to be pushing for tightening from the ECB next year, policymakers are under far less pressure than a number of their counterparts after a decade of fighting the threat of deflation, more so than inflation. And with inflation expected to fall early next year, the pressure is only going to ease further.
A logical correction for Bitcoin?
Bitcoin is continuing to come under pressure this week and the correction could become more severe if we see a break of $58,000. This is roughly where it found strong support at the end of October and given how much it’s struggled to make major strides higher since, it could be the catalyst for a deeper correction.
There’s been lots of good news for Bitcoin recently, be that the launch of ETFs or the Taproot upgrade and I wonder whether we’re now just seeing some profit-taking on those events. Both were expected, both were priced in, in advance, and with prices at record highs, it would be logical for some price correction to happen. Although that’s not always how this space works, as we’ve seen so often.