Marketmind: It’s all about inflation

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Markets are back to inflation watching. Just as global economic growth worries ease and labour markets remain tight, price trends have become the main focus for investors.

A slew of strong U.S. economic data has reinforced the view that interest rates will stay higher-for-longer.

The latest evidence came in the personal consumption expenditures price index, the Federal Reserve’s preferred gauge of inflation, which shot up 0.6% last month after gaining 0.2% in December.

Over in Europe, preliminary February inflation data is due from Germany, France, Spain and Portugal on Monday and Tuesday, followed by the euro bloc flash number on Thursday.

Though headline euro area inflation is easing, there is mounting realisation that it could proving more stubborn than earlier expected.

European Central Bank officials are not ruling out that rates might need to go up significantly beyond March.

Traders are now pricing in another 75 basis points of moves in the 20-nation euro zone before the end of the summer.

Graphic 1: ECB still in rate-hiking mode to contain inflation,

Graphic 2: U.S. inflation reaccelerates as prices remain hot,

On Monday, the downbeat sentiment took a toll on Asian markets. with a benchmark index falling 1% to the lowest levels since early January. The dollar hovered near a seven-week highs whle U.S. Treasury yields edged up.

Incoming Bank of Japan Governor Kazuo Ueda said the merits of the bank’s current monetary policy outweigh the costs, stressing the need to maintain support for the country’s economy with ultra-low interest rates.

This week, European investors will also digest results from the likes of Lufthansa, fund manager Abrdn, London Stock Exchange and Telefonica (NYSE:TEF).

Meanwhile, jittery markets are also keeping any eye on any new developments on the Russia-China front after the U.S. said any lethal aid from China to Russia would come at ‘real costs.”

Republican Representative Michael McCaul has said that Chinese leader Xi Jinping is preparing to visit Moscow next week for a meeting with Russian President Vladimir Putin.

On the corporate front, this week at the world’s largest telecoms conference, a clash between Big Tech and European Union telecoms firms over who will underwrite network infrastructure is set to dominate discussion at Barcelona.

Key developments that could influence markets on Monday:

European economic data: Euro zone Feb consumer sentiment, Germany Feb CPI

U.S. economic data: Jan durables goods orders