Morning Bid: Humble pie on central bankers’ menu

Pedestrians walk past the main entrance to the Reserve Bank of Australia building in central Sydney, Australia, October 3, 2016. REUTERS/David Gray

A look at the day ahead in markets from Sujata Rao.

First Sweden, now Australia. Two central banks that had said they saw no need for rate hikes until 2023 or 2024 have eaten humble pie in the space of a week.

Australia on Tuesday hiked rates by 25bp to 0.35%, a larger hike than markets had bet on and confirmed more to come in the months ahead. It also doubled inflation forecasts for this year. read more . It comes after Sweden last week upped rates by 25 bps and flagged more at upcoming meetings.

It just goes to show how much inflation has surprised to the upside. And with China lockdowns still continuing there may be no respite to the supply chain issues that were one of the causes of the price explosion.

An RBC report has found global port congestion is worsening, with marine insurance costs still rising and one-fifth of global container fleet is stuck in various ports. Ouch.

Next up, the Federal Reserve meeting which starts later today and will concludes on Wednesday, almost certainly with a 50 basis point rate hike and an announcement that balance sheet reduction will kick off next month.

Monday saw 10-year U.S. Treasury yields rise past the 3%-level for the first time since 2018.

Interestingly though, the yield jump was down to a 17 bps rise in real inflation adjusted yields and that took 10 year break-evens — a gauge of future inflation expectations — below 3%. Could it be that markets are becoming convinced that an aggressive Fed will be able to tame inflation and inflation expectations?

Equity markets are opening firmer in Europe this morning and U.S. stock futures are higher too. That was after a flash crash on Monday caused by a Citi trader’s fat finger.

Jittery traders in Asia sent Alibaba shares and bonds plunging after a media report that authorities in Hangzhou had placed curbs on a person surnamed Ma. They recovered after it turned out not to be Alibaba’s Jack Ma. read more

Key developments that should provide more direction to markets on Tuesday:

– S.Korea inflation hits 13-yr high read more

– German unemployment April

– Euro zone PPI March (Feb 36.2%)

– Energy ministers from European Union countries hold an emergency meeting to discuss the bloc’s energy supply,

– ECB President Christine Lagarde, Norway Central Bank Governor Ida Wolden Bache speak

– EU Informal video conference of economy and finance ministers.

– US factory orders/durable goods/JOLTS job openings

– European earnings: BNP Paribas/Telenor/Deutsche Post/Uniper/BP/Osram/JD Sports/telecom Italia

– US earnings: DuPont, Thomson Reuters, Pfizer, Estee…