Another big week ahead

Stock markets are off to a mixed start at the beginning of the week, with much of Europe back in record territory and the US now flat after a positive start.

Not bad considering central banks around the world are having a small panic about inflation and planning multiple rate hikes over the next year or so. In the past, the idea of this has sent shockwaves through the markets and that was when economies were in a far healthier position.

Contrast the current situation with the last US tightening cycle and the economy has almost two years of growth to makeup and a labour market that is still not fully recovered. What’s more, an energy crisis and higher prices will eat away at disposable incomes and be a significant headwind throughout the winter.

And yet, investors remain bullish after what has been, in fairness, a very strong earnings season, albeit with plenty of caveats. Whether that continues beyond the reporting period is another thing, with it potentially being harder to find positives to drive markets higher.

The Fed will announce tapering this week, the Bank of England may raise rates and the RBA could offer a less dovish view on the outlook after some strange activity this past week. And that’s just the start, with other central banks already heading in that direction and prepared to do more over the next year as inflation remains uncomfortably high.

PMIs a mixed bag

This week brings a broad selection of PMI data from around the world and so far it’s been a bit of a mixed bag. China alone saw its official readings for manufacturing and non-manufacturing slip to 49.2 and 52.4, respectively, falling short of expectations, before Caixin released its manufacturing PMI this morning which rose to 50.6 and eased concerns. Still, higher input prices, lower demand and power rationing continue to make the environment very tough for manufacturers and that will persist for some time yet.

Bank holiday’s across Europe today mean final PMIs from many countries will be a day late this week. The UK saw its number revised slightly higher although the sector continues to suffer multiple challenges from supply chains to Brexit. US PMIs were mixed, with the more closely followed ISM falling a little but exceeding expectations, while the official reading fell further than expected.

Bitcoin holding for now

Bitcoin is continuing to hold on in there above USD 60,000 after coming under a little pressure over the weekend. It bounced back quickly after breaking this level last week which suggests there’s plenty of desire to push for new records but it is struggling to take off following the ETF launch. A break of USD 60,000 could see the correction deepen but there still seems to be plenty of support longer term.

For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/

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