European stock markets rose in the early stages of trading, after a red start to the week, and with the focus on central banks: scheduled for the hearing at the Banking Commission of the US Senate of Jerome Powell for reconfirmation at the helm of the Fed, while in an interview with Il Sole 24 Ore the chief economist of the ECB Philip Lane has judged “highly unlikely” a rate hike in the euro zone in 2022. After the anticipations of Powell’s speech that the Federal Reserve will be ready to use the tools to prevent a scenario of high inflation from consolidating, analysts are they are waiting for “hawkish” indications from the number one of the US central bank.
Inflation and the Fed’s moves
On the macro front, the wait is for tomorrow, January 12, when the United States releases the new inflation data. Expectations are for a jump to 7%. But even today the markets could go into fibrillation, when Jerome Powell, the re-elected president of the Fed, will have to go to the Senate for a hearing precisely to ratify his confirmation as president of the American central bank. The reason for some concern is obvious: the markets are starting to fear that the Fed, to fight the cost of living, will become increasingly aggressive in monetary tightening. This caused the stock exchanges to fall on Monday (especially the Nasdaq and US tech stocks).
It is now obvious that the Fed’s focus has shifted from economic growth and employment to fighting inflation: after all, if it really did rise to 7% as expected, it would be a much higher figure than the Fed’s target and above all of a fact capable of creating social problems for American families. So the market expects the Fed not only to close with bond purchases in March, but to raise rates three (or four) times in 2022, and soon (in July) to start reducing its balance sheet as well. That is, to sell stocks that he has bought. This caused US 10-year rates to rise to 1.8% on Monday (maximum since January 2020) and 10-year Bund rates to almost 0% (maximum since May 2019).
Tokyo drops 0.9% with Wall Street weakness and China cases
The Tokyo Stock Exchange closed the session down about 1%, dragged down by the weak Wall Street ending and the cautious investor sentiment regarding the US monetary policy outlook but also by the new cases of Omicron in China with the third city in lockdown. At the end of the trade, the Nikkei index of leading stocks lost 0.90% to 28,222 points and the broader Topix 0.44% to 1,986.82 points.
The appointments of Tuesday 11 January
On the macro front, Istat releases data on retail trade in November. The World Bank report on global economic prospects is also on the agenda. But the highlight of the day, as mentioned, will be the Fed’s Powell Senate hearing, which could give some indication of the next moves by the US central bank.