Markets paused in overnight trading as once again European and US investors went separate ways. Continental stocks sagged as PMIs showed Germany’s economic dominance continues, while soothing minutes from the US Federal Reserve’s recent meeting lifted US stocks to close flat.
The Fed minutes continued the clear and co-ordinated messaging from central banks in 2021. The board expressed confidence in a major economic recovery, while talking down any inflationary concerns. The Fed believes that any lift in inflation will be temporary, and that price pressures will ease in 2022.
This is a heroic assumption given the historical difficulty of containing inflationary spirals, and it is clear interest rate traders do not believe the narrative. Short term lending futures markets are pricing a rate hike in January next year, well ahead of the Fed’s putative 2024 take off. US ten-year bonds came under renewed selling pressure to close 2.5 bips higher for the session, and the US dollar recouped early losses.
Asia Pacific traders face another challenging day in deciding which international leads to follow. The picture is further complicated by an odd performance by the Australia 200 index futures. The contract finished the overnight session 36 points higher, and leapt again at this morning’s pre-market re-opening. The sharp gains are difficult to explain. International shares were weak, commodity prices fell and the Australian dollar is dropping. The early gains may prove unsustainable today.