Morning Bid: Fed’s hawkish pause keeps pressure on markets

A look at the day ahead in European and global markets from Brigid Riley

Investors head into the final week of the quarter still digesting last week’s surprising and at times contradictory central bank decisions while preparing for more inflation data from the U.S. and Europe.

Global markets have been feeling the heat as U.S. bond yields surged and a strengthened dollar hit a six-month high following the Federal Reserve’s hawkish tone last week. The yen was also nudging towards the closely watched 150 per dollar level.

The Federal Reserve indicated that rates would be higher for longer, while its counterparts in Britain, Switzerland and Japan were surprisingly dovish. The euro zone central bank also struck a relatively dovish tone.

In the midst of it all, both the pound and the euro are taking a beating this month: The euro is on track for its steepest monthly fall since May while sterling is heading towards its worst monthly performance in a year.

But markets will have plenty of material to pore over this week as they try to glean future Fed moves. U.S. central bank officials will be out in force, starting with Minneapolis Fed President Neel Kashkari on Monday, and key inflation data are due on Friday.

In the euro zone, ECB President Christine Lagarde kicks off a string of speeches and remarks this week. Markets are expecting that the euro zone’s central bank is done hiking.

Preliminary September consumer price data for the bloc due at the end of this week is also still sure to be on investors’ watchlist.

Elsewhere in Europe, Germany’s economic struggles are once again garnering attention, with the government aiming to prop up the ailing building industry by indefinitely suspending plans for more stringent building insulation standards.

Meanwhile, property sector struggles persist in China. Shares of China Evergrande (3333.HK) plunged as much as 24% on Monday after the embattled developer said it was unable to issue new debt due to an investigation into one of its subsidiaries, dealing a fresh blow to its restructuring plans.

Movie and television fans, however, might have some reason to rejoice, with news of a tentative labour agreement between writers and major studies coming out of Hollywood on Monday morning.

Key developments that could influence markets on Monday:

-German Ifo business survey

-ECB President Christine Lagarde gives introductory remarks

-ECB policymaker and Bank of France Governor Francois Villeroy de Galhau and ECB board member Isabel Schnabel also speak

-Fed’s Neel Kashkari participates in Q&A session

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