US and European futures are picking up the momentum from Asia, where things have been trading in a positive direction. Overall, traders are a lot more optimistic to begin the week as markets recorded a lot better weekly progress last week and broke their spell of weekly losses. Remember, when it comes to markets, the story starts with the energy crisis, and this is where the story will end as well, and the rest is nothing but noise. So if you look at the energy crisis more closely, nothing has improved significantly or insignificantly yet as the threats of major chaos are still out there for the Eurozone and for the UK as we march towards winter. Russia is still fully determined to choke Europe from its energy, and many believe that the current withdrawal of some of its forces from critical locations could be the country’s strategy to launch a nuclear attack.
Nonetheless, traders are hoping for the best, and they are gearing up for the latest reading of US inflation which will be coming out on Tuesday. The reading is going to be the most important one to watch as it is highly possible that we may see another lower number. If inflation data in the US shows further weakness, that will support the sentiment massively among traders and investors. This is because it will send a clear sign that the Fed finally has something under its control, and there are chances that inflation readings will continue to fall from their recent highs, which everyone is looking at.
While traders are optimistic about the health of market conditions, economic data and efforts employed by central banks, politicians are leaving no stone unturned to anchor tensions further with the second biggest economy of the world, China.
New export limits from the U.S. Department of Commerce will restrict the flow of chipmaking equipment into Chinese facilities that make high-tech semiconductors.
Earlier this year, the government notified KLA, Lam Research, and Applied Materials in writing that they would require permits to sell such equipment to purchasers who produce semiconductors using sub-14 nanometre techniques. These initiatives serve as the basis for the guidelines.
Short-term yields have risen dramatically to their highest levels since 2008 in response to statements from Federal Reserve chairman Jay Powell that the Fed was in no mood to scale back on its goal to boost rates by another 75bps, somewhat overshadowing a not inconsequential 75bps rate rise from the ECB.
The ongoing strength of US economic statistics has also contributed to the increase in yields, while the UK’s announcement of a sizable new fiscal package to shield households and companies from rising energy costs has contributed significantly to the rise in yields there.
European rates are also on the rise after Bundesbank President Joachim Nagel made it clear he wanted to see swift rate rises throughout Europe. However, what Nagel wants and what the ECB can accomplish are two very different things, especially when yields on Italian bonds are taken into account.
A Sad Nation And The Pound
As the United Kingdom observes a time of national mourning for Queen Elizabeth II, a sovereign who has been a part of the fabric of UK society for almost 70 years, the pound will be particularly in focus this week.
During her reign, Elizabeth guided the United Kingdom through a time of cataclysmic change in the country and the world at large, leaving a lasting impact on both.
Millions of people will mourn her not just as a symbol and anchor of stability, but also of service and duty, and she will leave a lasting legacy in the UK and across the globe. Never again will anybody see her like this.
The UK and the rest of Europe are now fighting an economic crisis, so some may argue that 10 days of national mourning this week is something the country can ill afford. However, this critique, like the criticism of the 2-day bank holiday in June, misses the point entirely.
We can’t reduce everything to a set of statistics, and it’s not like the economy hasn’t recovered from similar situations before.
Economic data released today and this week will serve as a sobering reminder of the ongoing strains on the British economy brought on by the conflict in Ukraine.