A look at the day ahead in European and global markets from Tom
Westbrook
Traders are scaling back bets on U.S. rate cuts, but
dialling up expectations for British hikes.
On Tuesday, it was bigger-than-expected pay rises that
strengthened expectations for the Bank of England to lift rates
next month and to continue doing so thereafter. Sterling rose.
Ten-year gilt yields climbed for a sixth straight
session.
On Wednesday, British inflation data is in focus.
Economists polled by Reuters see the pace of annual price
rises slowing, although it is cold comfort as they expect that
to bring CPI down only as far as an eye-watering 9.8%.
On balance, the sheer size of the Bank of England's task of
reining in inflation has been supportive for sterling, which hit
a 10-month high last week. Implied volatility in the options
market suggests traders don't expect sudden changes in the
currency's slow grind higher.
Sterling shorts are at their smallest amounts
since last March. BoE committee member Catherine Mann appears on
a climate change panel later on Wednesday.
On the continent, final CPI figures are also due and a
similar divergence in the rates outlook has the euro near
one-year highs versus the dollar.
Elsewhere, earnings are in focus with electric vehicle maker
Tesla reporting quarterly results and investors looking
for guidance on how hard car price cuts have hit margins.
Morgan Stanley also reports, although investors seem
to have already been satisfied that U.S. banking stress is not
derailing the broader sector, and are back to Fed watching.
Bond markets see rates peaking soon. Six-month Treasury
bills yield less than three-month bills ,
and the yield premium on both against the 10-year yield is its widest since the peak of the 1981 cycle.
The Fed's "beige book" of economic conditions is published
later on Wednesday and appearances are due from Chicago Fed
President Austan Goolsbee and New York Fed President John
Williams.
Key developments that could influence markets on Wednesday:
Data: UK and Eurozone inflation, Fed's beige book
Speakers: Fed's Goolsbee and Williams, BoE's Mann, ECB's
Schnabel and De Cos
Earnings: Tesla, Morgan Stanley, IBM, Alcoa
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(Reporting by Tom Westbrook; Editing by Edmund Klamann)
