A look at the day ahead in U.S. and global markets from Mike Dolan
A rare positive surprise from Chinese industry and retail has unnerved interest rate and energy markets some more, upping the stakes at this week's major central bank meetings.
Although stock markets continue to sidestep the rebound in borrowing rates over the past week - moves seeded by both stubborn inflation readouts and brighter growth and earnings signals - the prospect of a more significant Chinese recovery may add pressure to the delicate balance.
China's factory output and retail sales beat expectations in the January-February period, according to official data released on Monday, marking a solid start for 2024 and offering relief to policymakers fearful of the drag from the ongoing property bust.
Industrial output rose 7% in the first two months - the quickest growth in almost two years. Retail sales slowed to 5.5% from 7.4% in December but also slightly beat forecasts.
Chinese stocks <.CSI300) closed at their highest for the year and have now recaptured 12% of the past year's withering slump since the start of February. Global stocks and U.S. futures started the busy week on a more positive note as a result.
But the impact of a punchier Chinese economic rebound on global oil and commodities comes at a critical juncture for inflation-watchers, central banks and bond markets.
U.S. crude oil prices - irked additionally by supply factors and geopolitical concerns from Russia to Gaza - pushed further above $80 per barrel on Monday to their highest since early November. That has lifted year-on-year oil price gains to 22% - the fastest annual pace since December 2022.
With Russia's predictable weekend election result tightening Vladimir Putin's 25-year grip on power, Ukraine's continuing attacks on the country's oil refineries are having an impact on energy markets at the margins too.
On Saturday, one of the strikes sparked a fire at the Slavyansk refinery in Krasnodar, which processes 8.5 million metric tons of crude oil a year, or 170,000 barrels per day. A Reuters analysis found the attacks have idled around 7% of Russian refining capacity - which feeds demand from China and India - in the first quarter.
The oil price irritant will do little to ease the fresh angst in Treasury debt markets, where 2- and 10-year yields hit their highest in almost a month early on Monday ahead of this week's latest Federal Reserve meeting.
U.S. Treasury exchange-traded funds are now down 2% for the year to date, with long duration versions containing 20 and 30-year bonds off about 6% for 2024.
There is no hope of a Fed rate cut this week, but their new economic projections may be a wild card - potentially signalling fewer interest rate cuts and a later start to the policy easing than they previously had estimated.
Futures markets are now not pricing a full Fed rate cut until July, seeing only a 50-50 chance of a move as soon as June and just 75 basis points of easing over the whole year.
U.S. March homebuilder sentiment readings are due out later on Monday, but are unlikely to have much of a bearing on this week's Fed meeting - where discussions will also likely start on possible tapering of the central's bank's balance sheet rundown.
The brighter growth and edgier oil and inflation outlook also ups the ante for tomorrow's Bank of Japan decision, where speculation is now rife the BOJ will end its negative interest rate policy following months of second-guessing and after news last week of the highest wage growth in more than 30 years.
The Nikkei newspaper on Saturday became the latest media outlet to flag the policy move as soon as Tuesday.
But Japanese markets now seem well prepared for the shift - with the yen softening to its weakest level in almost two weeks near 150 per dollar and the Nikkei stock benchmark rallying more than 2% on Monday.
The dollar was steady more generally.
In company news, the day ahead is likely to be dominated by artificial intelligence bellwether Nvidia (NASDAQ:NVDA)'s annual developer conference. Nvidia's stock price was up 2% ahead of the bell in anticipation.
Key diary items that may provide direction to U.S. markets later on Monday:
* U.S. NAHB March housing index; Canada Feb producer prices
* Nvidia's annual developer conference
* US Treasury auctions 3-, 6-month bills
(By Mike Dolan, editing by Ed Osmond, mike.dolan@thomsonreuters.com)