Marketmind: Rate jitters are back

Inflation remains the watch word in the markets on Friday as investors await data on consumer prices from Spain, France and Sweden after U.S. data showed sticky inflation, while the latest report from China highlighted persistent deflationary pressures.

Thursday’s U.S. consumer price data stoked expectations that the Federal Reserve is perhaps not yet done with monetary tightening. Markets are now pricing in about a 40% probability of a rate hike in December, versus a 28% chance before the report.

In recent comments, Fed officials have cited rising bond yields as a factor that may allow them to end the rate hike cycle.

But the latest data has brought some of the rate jitters back.

It all made for a risk-off environment during Asian hours, with MSCI’s broadest index of Asia-Pacific shares outside Japan sliding 1%, on course to snap its three-day winning streak.

The dollar held onto its overnight gains against a basket of currencies, after ending Thursday trade with its biggest one-day percentage jump since March. That has put the yen back under pressure and hovering close to the 150 per dollar level. It last fetched 149.78 per dollar.

Meanwhile, Singapore’s central bank surprised the market by announcing it would shift to a quarterly schedule of policy statements in 2024 from its twice-a-year routine. Its monetary settings were left unchanged.

Futures indicate European stocks are set to continue the sombre mood with a lower open.

Also likely weighing on investors’ minds is Friday’s report from China – where deflation, not inflation, is worrying the markets – which showed the consumer price index unchanged in September from a year earlier, missing the forecast of a 0.2% gain in a Reuters poll.

There was some good news, though, among the raft of economic data from the world’s second-biggest economy. The pace of decline in China’s exports and imports slowed for a second month in September, adding to recent signs that the faltering economy may be gradually stabilising.

With earnings season upon us, the market’s eyes will be on U.S. banks. Results from JPMorgan Chase (NYSE:JPM) due on Friday will set the tone.

Key developments that could influence markets on Friday:

Economic events: September inflation data from Spain, France and Sweden; Eurozone industrial production data for August