BIG SCARY CPI DAY

I was going to include a feel good quote about the market facing its deepest fears and overcoming them, but it felt too sarcastic...

Either way, the big inflation number will be the focus today.

Not because it tells the market anything it doesn't already know.

It's almost like everyone is waiting for everyone else to freak out about it so they can jump in and take the other side.

ICYMI yesterday... Thoughts on CPI 👇👇

Asian stocks are higher in overnight trade 👇

06:40BST

News that U.S. & China commerce ministers spoke again was seen as positive (or at least not negative)

“I won’t get overly excited” about the call, said Alvin Tan, head of Asia currency strategy at RBC Capital Markets LLC. “It’s positive in the sense that both countries are stepping up” economic and trade communication, but no game-changing decisions or announcements have come out, he said.

On the Chinese side:

China's central bank governor doesn't fear inflation.

Yi Gang said "China doesn't fear inflation, inflation fears China" (according to my sources)

"Of course, there are uncertainties in the overseas pandemic situation, economic recovery and macro policies, so we should be on alert toward both inflationary and deflationary pressure in many aspects," Yi said.

The potential growth rate of China's economy is slowing, and future expansion must be driven by rising productivity and reforms, rather than investment of capital and labour, Yi said, citing an aging population.

Marketwatch reported the aging population comments more specifically

He said China's aging population, which leads to higher saving and lessened spending, would pressure prices lower, while Beijing's efforts to cut carbon emissions would push prices higher.

The two opposing forces can help stabilize prices in China, he said.

Boris Johnson and Joe Biden will on Thursday attempt to bury their differences by signing a 21st century “Atlantic charter”, committing Britain and the US to working together to tackle global challenges including the rise of an authoritarian China. At their first face-to-face meeting, the UK prime minister and US president are expected to announce a task force charged with reopening transatlantic travel and agree in principle a deal to jointly develop technology, including artificial intelligence.

The 2021 document will outline eight broad areas of co-operation, including defending democracy, reaffirming the importance of collective security, building a fair trading system and dealing with cyber attacks. China is not mentioned by name but the clear subtext is that the two leaders intend to co-operate in handling the strategic rivalry with Beijing. One British official said: “It’s not unreasonable to see a read-across to China.”

Johnson and Biden will also set out plans for a technology agreement, to be signed next year, reducing the barriers that UK companies face when trying to work with their US counterparts in areas including AI.

Foreign buyers are buying treasuries again... 👇

@ZackEiseman

ANZ now think the RBA will start hiking in 2023 (vs 2024)

And it's ECB day too!!

Adam Linton (Newsquawk) summarised the ECB expectations in this thread as follows:

UBS:

  • Expects the ECB to signal that its PEPP purchases will continue in Q3 at a pace similar to Q2, and that tapering" is too early.

  • Announce on 16 Dec that the PEPP will not be extended beyond March 2022 but will beef up APP when it concludes.

HSBC:

  • ECB will maintain a higher pace of purchases for another quarter.

  • But in classic ECB style, it might use a slightly different word than 'significantly' in order to keep more hawkish GC members on board.

RBC:

  • See the ECB keeping its PEPP guidance unchanged for the Q3, despite some market participants calling for a reduction in purchases.

  • The bond market sell-off will remain a danger for the ECB’s pledge to keep ‘favorable financing conditions.

Danske:

  • We expect ECB's PEPP purchase guidance to shift from significantly' to 'moderately' higher than at the start of the year, i.e. we expect PEPP buying to be EUR70bn/ month in Q3 versus the current net purchase pace of EUR80bn/month.

Goldman:

  • Despite recent dovish ECB communication, we continue to look for a slight reduction in the PEPP pace in Q3, but we expect the ECB to maintain the “significantly higher” language at the June meeting, to deflect tapering concerns.

Rabobank:

  • We expect a “technical adjustment” to the PEPP pace, with a “slightly lower” pace through Q3, but we acknowledge the risks are skewed towards a delay of any such slowdown.

Morgan Stanley:

  • Despite an improved outlook, we expect the ECB to maintain the current pace of purchases, given tighter financial conditions, risks to the recovery, a weak inflation outlook and dovish ECB commentary.

Nordea:

  • The ECB is likely to continue buying bonds at close to the current pace after this week’s meeting.

  • The rise in yields may have paused for a while, but we see yields rising and spreads widening again in the second half of the year.

Credit Suisse:

  • Ultimately, we remain skeptical of hawkish risks from the ECB decision, given the possibility that such an outcome could lead to EURUSD storming past those highs, undermining inflation expectations.

Viraj Patel / Vanda

The ING base case looks good to me, but the significantly / moderately nuances in the statement will be worth monitoring as well as the sources comments after the presser.

Seriously, does anyone really expect a hawkish surprise from the ECB?