The reopening of the Chinese economy will be a double-edged sword for markets. Stocks may get a short-term reprieve.
But the reaction of oil prices today was telling: at one point, WTI crude had risen over 4%, past $92/barrel. The energy sector has outperformed the S&P 500 this year, because oil companies have prioritised shareholder value. Ultimately, this will have inflationary repercussions.
Overall, labour markets remain too tight in the US, the UK, and the Eurozone.
Today’s payrolls report showed signs of progress on the wages front. But the jump in the NFIB compensation plans index (back up to record highs) advises caution. This is a good lead indicator for most key wage metrics (Atlanta Fed wage tracker, ECI, etc.). It is simply too early to declare victory on wages.
The inflation picture is not improving in the Eurozone either. The headline CPI rate hit a record 10.66% in October. The Eurozone core CPI (ex-food & energy) increased 0.44% m/m: the 3m/3m annualised rate accelerated to 6.08%, a new high.
The Governor of the Bank of England has tried to strike a more dovish tone. But the spread between 2-year US Treasury and UK Gilt yields has spiked. Sterling should continue to fall against the dollar. A stronger sterling will require a much bolder BoE.
