LIVE MARKETS 15% inflation in the United States: how outrageous is it?

  • European equities down 1.1%
  • All sectors in the red
  • The Omicron affair in the United States fuels the alarm
  • U.S. Futures Recover From Selling

December 2 – Welcome home for real-time market coverage presented by Reuters reporters. You can share your thoughts with us at [email protected]

15% INFLATION IN THE UNITED STATES: HOW INDEPENDENT IS IT? (12:10 GMT)

While the outlook for 2022 is bleaker than ever, thanks to the Omicron variant, there are at least a few things that have been clarified in the final weeks of 2021.

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First, the ‘transient inflation’ rhetoric has been officially dropped by the Fed and there is a clear consensus that rising prices are now a key threat for next year, as has been noted. underlined the OECD yesterday.

Consumer prices in the euro area accelerated to 4.9% in November, by far the highest level in 25 years and the Fed’s preferred measure of inflation rose the most in nearly 31 years on an annual basis in October.

The question is, how can it be worse?

Well, according to Saxo Bank’s newly released annual “Outrageous Predictions” research note, US inflation could reach 15% in 2022, fueled by soaring wages.

Now, of course, Saxo Bank points out that its “outrageous predictions” are by no means a prediction of what’s to come, but rather a deep dive into “known unknowns” or anything that could constitute a black swan for the markets. financial.

Still, we asked Steen Jakobsen, chief economist and CIO of Saxo Bank how outrageous a prediction of US inflation reaching 15% really is.

“It’s not that outrageous,” he told us, pointing to a possible energy crisis this winter combined with supply chain issues, rising rents and, most importantly, skyrocketing wages.

The 15% figure is based on the assumption that each inflation cycle tends to exceed its past all-time high, so in this case 15% would be just above that of the early 1980s.

For Jakobsen, the rapid change in the Fed’s stance on inflation reflects the realization that Main Street America is about to feel the pain of rising prices biting into their purchasing power with all the consequences. policies that this might entail.

And what would 15% inflation mean for investors?

“Stagflation is the immediate response,” says Jakobsen, who sees a potential for a 25% correction in US stock markets in this scenario.

Either way, Saxo’s other “outrageous predictions” include:

* Plan to End Fossil Fuels Gets Rain Check

* Facebook Faceplants on the exodus of young people

* Midterm elections in US lead to constitutional crisis

* Announcement of the EU’s superfund for climate, energy and defense, which will be financed by private pensions

* Women’s Reddit Army takes on corporate patriarchy

* India joins Gulf Cooperation Council as non-voting member

* Spotify disrupted due to NFT-based digital rights platform

* New hypersonic technology drives space race and new cold war

* Medical breakthrough extends average life expectancy by 25 years

(Julien Ponthus)

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STILL WORRIED ABOUT A FALCON BCE IN DECEMBER? (10:31 a.m. GMT)

In the bond market, it’s not all about the Federal Reserve, which may have decided to stop monitoring financial markets as some analysts worry about a more hawkish stance by the ECB in December despite the Omicron variant.

“The yield on the Bund in the five-year maturity band – usually the segment of the curve that reacts most strongly to news or expectations about the ECB’s asset purchase programs – has increased by up to 7bp in the wake of the latest series of inflation data, ”analysts at DZ Bank say.

Bundyields

Consumer price increases in Germany rose 6.0% year-on-year in November, the highest rate recorded since January 1997, when the EU’s harmonized series began. Read more

“The market continues to worry about how the ECB Governing Council will recalibrate its policy – which will also affect the PEPP pandemic emergency procurement program – in two weeks,” add analysts from DZ Bank, also mentioning information about a possible delay.

Sources said a growing number of European Central Bank governors are considering delaying part of a decision on ECB stimulus packages as the outlook has been blurred by a new variant of the coronavirus and increasing pressure on the costs. Read more

(Stefano Rebaudo)

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RETURN TO RISK-OFF (08:40 GMT)

Stock markets have entered a roller coaster pattern and uncertainty over the Omicron variant has increased volatility, keeping benchmarks swinging between massive selloffs and rebounds.

Today is no exception and in Europe we are reverting to simple risk reduction after yesterday’s gains. The STOXX 600 is down more than 1%, no sector is trading in the dark, and 88% of pan-European index constituents are showing losses.

In this environment, corporate news has a negligible impact on stocks. Among the rare exceptions, Vifor (VIFN.S) climbed 12% according to reports that Australian biotech group CSL is in talks to buy the Zurich-listed company.

Here’s your opening snapshot:

instantaneous

(Danilo Masoni)

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FLIGHT TAKES A TOLL (0806 GMT)

COVID fears, the approach of year-end and the tightening of the Fed’s signaling policy – this is a recipe for turmoil and this is what we are seeing. The VIX, a stock volatility index dubbed Wall Street’s fear gauge, climbed above 30%, double the placid levels of mid-November (.VIX).

The discovery of a single Omicron case in the United States made the screens of Wall Street traders blush, quickly reversing what had been a dynamic session after a record close European stock market (.STOXX). Read more

Sentiment within the investment community, anxious to protect the portfolio’s gains since the start of the year, is clearly slipping.

The volatility of bonds and currencies also reached their highest level since last March and December respectively, (.MOVE),.

Asia took over from New York on Thursday and the downtrend continues in Europe. US futures, however, are signaling a higher open, at least for now.

Listen to a series of speakers from the Fed – their last broadcast before the quiet period before the meeting. Warmongering messages are strong and clear; Cleveland Fed boss Loretta Mester, voting member of the Fed next year, believes the bank should be able to make a few rate hikes next year.

More money was pumped into Treasuries, with 10-year yields now falling more than 20 basis points from a week ago.

In Europe, German 10-year rates are close to their recent 2.5-month lows. For signs of stress, also look at Italy, whose bond yield premium to Germany this week has widened and is at its highest since last October.

Finally, oil remains on shaky ground amid Omicron worries and travel restrictions. An OPEC + meeting later today will decide whether to increase monthly production or reduce supply read more.

The theft also didn’t bypass oil markets – Brent futures jumped $ 20 from August to October, fell nearly $ 10 in mid-November, and fell another $ 10. since then.

Rising volatility

Key developments that should provide more direction to the markets on Thursday:

– euro area PPI / unemployment

– ECB speakers: Fabio Panetta, member of the ECB’s executive board

-Fed Speakers: Mary Daly, President of San Francisco, Thomas Barkin, President of Richmond, Raphael Bostic, President of Altanta

– Emerging markets: Brazil’s Q3 GDP, India’s trade balance

-Initial jobless claims in the United States

(Sujata Rao)

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EUROPE: A DAY FULL AHEAD (07:36 GMT)

Omicron has reached the United States and the late sell-off seen on Wall Street overnight is expected to deteriorate the mood at the opening here in Europe after yesterday’s rebound from 7-week lows.

It is clear that the volatility is here to stay until there is more clarity on the risks associated with the new variant of the virus.

So, as European equity futures drop around 1%, US indices look set for a slight rebound later.

(Danilo Masoni)

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