Morning auction: COVID returns

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A medical worker in protective gear takes a swab from a resident at a makeshift nucleic acid testing site, following cases of the coronavirus disease (COVID-19) in Shanghai, China, 11 March 2022 Picture taken March 11, 2022. cnsphoto via REUTERS

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A look at the day to come on the markets of Julien Ponthus.

There’s arguably never a good time for the COVID-19 pandemic to return, but China’s spike in cases over the weekend comes at a time when the global economy could be doing without another layer of stress for its already strained supply chains.

Ukraine’s two main suppliers of neon, which produce around half of the world’s supply of the key chip-making ingredient, have halted operations, threatening to hike prices and deepen the shortage of semiconductors.

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This morning, Chinese stocks fell as national COVID-19 cases hit a two-year high, prompting tech and financial hubs in Beijing to impose restrictions.

No one can guess how serious the outbreak will be and how much pain it will cause the global economy, but the economic fallout from Russia’s invasion of Ukraine is already taking a heavy toll.

Analysts began to revise corporate earnings estimates down and on Thursday the European Central Bank lowered its 2022 growth target to 3.7% from 4.2% while raising its inflation forecast to 5 .1%.

This week, all eyes will be on the Federal Reserve and US Producer Price Index (PPI) data, which is expected to show a 10% annual jump on Tuesday, will set the stage for a rate hike.

A quick look at the growing popularity of search queries for ‘stagflation’ on Google Trends confirms that central bank hawks and doves aren’t the only ones worried about soaring oil prices and rates higher which slows down the economy.

Meanwhile, the pan-European STOXX 600 and Wall Street’s S&P 500 are down more than 11% year-to-date, but this morning futures are pointing to a positive start to the week.

With low visibility on the macro front, trading in recent weeks has focused on news of the war in Ukraine and diplomatic efforts to end it.

Shares jumped on Friday as Russian President Vladimir Putin noted “some positive changes” in trading and investors and trading algorithms will be on the lookout for any signs that the crisis could somehow another defusing as talks continue today.

Key developments that should give the markets more direction to learn more on Monday:

– India’s February WPI inflation accelerates to 13.11% YoY

– February German wholesale prices +1.7% m/m, +16.6% y/y

– Eurozone finance ministers meet on fiscal stance for 2023 and banking union

– Speakers from the ECB: President Christine Lagarde and members of the Executive Board Fabio Panetta and Frank Elderson

– UK property prices Rightmove

Inflation: back to the 1970s?
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Reporting by Julien Ponthus, editing by Karin Strohecker

Our standards: The Thomson Reuters Trust Principles.

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