Marketmind: Dot plots, oil blots and auto strikes
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[September 18, 2023]
A look at the day ahead in U.S. and global markets from Mike Dolan
Gatecrashed by an alarming backup in crude oil prices, this week's
dominant event may be less decisive than at first glance as the U.S.
Federal Reserve will be keen to keep all future policy options open.
Futures markets appear comfortable the Fed will at least pause its
interest rate rise campaign on Wednesday. But updated quarterly economic
and rate projections from its individual policymakers will map out the
remainder of the year and 2024.
And just like global markets have been discombobulated this month, the
central bank will be grappling with low visibility and a plethora of
mixed signals.
The picture is no clearer for the Bank of England, which is set to
deliver its final hike in the cycle to 5.5% on Thursday, or the Bank of
Japan, which will be watched closely on Friday for any further
increments in its gradual tightening process too.
Chief among the irritants for the central banks has been the rebound in
crude oil price and the fading annual base effects that have flattered
headline disinflation progress this year.
A combination of more Saudi and Russian supply cuts and a global demand
spur at last from China's struggling economy late last week combined to
drive U.S. crude prices to 10-month highs above $90 per barrel - a
rebound of some 36% since midyear that brings year-on-year prices back
into positive territory again.
![](http://archives.lincolndailynews.com/2023/Sep/18/images/ads/current/humanesociety_sda022411.png)
That's been central to driving 10-year Treasury yields to near 16-year
highs again on Monday at 4.4%, unsettling all markets and stock sectors
that are highly sensitive to long-term borrowing rates and discount
rates, and keeping the dollar pumped up. And speculators turned positive
last week on the dollar's outlook against other G10 currencies for the
first time in 2023.
While 'core' inflation rates excluding energy prices are what
policymakers look to most closely for clues to sustained price
pressures, higher energy costs seep into all price-setting processes and
household demand calculations and are critical to inflation
expectations.
And yet again, the picture there is clear as mud.
Headline inflation has been ticking up again while core rates are
declining.
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![](../images/091823PIX/busine54.jpg)
A nighttime view of Marathon Petroleum's Los Angeles Refinery, which
processes domestic & imported crude oil into gasoline, diesel fuel,
and other refined petroleum products, in Carson, California, U.S.,
March 11, 2022. REUTERS/Bing Guan
![](http://archives.lincolndailynews.com/2023/Sep/18/images/ads/current/peasleymemorials_lda_2022.png)
Public inflation expectations captured by the University of
Michigan's monthly survey on Friday showed the one-year outlook fell
to 3.1% - the lowest since March 2021 - and the five-year inflation
view slid to a one-year low of 2.7%.
On top of that, monthly economic readings are likely to be sideswipe
from months by a distortion to industrial and payroll stats from
labor strikes at the big U.S. automakers. Some 12,000 auto workers
walked out on Friday after the United Auto Workers union failed to
get a deal on new contracts with Detroit's "Big Three" auto giants
General Motors, Ford and Stellantis.
Adding to the supply-side confusion was a hit to chipmakers late
last week from news that Taiwan's TSMC told its major suppliers to
delay the delivery of high-end chipmaking equipment as the world's
top contract chipmaker grows increasingly nervous about customer
demand.
And the economic and political noises from China remain edgy and
unclear.
Shares of embattled developer China Evergrande plunged 25% on Monday
after police detained some staff at its wealth management unit,
suggesting a new investigation that could add to the property
company's woes.
With the property bust smouldering, the geopolitical backdrop is no
better. But hopes for a U.S.-China summit later in the year were
kept alive by background talks at the weekend.
Events to watch for on Monday:
* U.S. September NAHB Housing Market Survey, July TIC data on
foreign holdings of U.S. Treasuries
* U.S. Treasury auctions 3- and 6-month bills
* European Central Bank Board Member Fabio Panetta speaks
(By Mike Dolan, editing by Bernadette Baum)
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