Marketmind: One coin to rule them all

September 30, 2021

A look at the day ahead from Julien Ponthus

That the practicalities of minting a U.S. trillion-dollar coin are actually being debated says a lot about the zeitgeist of this final day of Q3 2021.

Yes, #MintTheCoin is a thing and while the idea of Treasury Secretary Janet Yellen raising $1,000,000,000,000 through a single coin to avoid a default seems like a fantasy, akin to Tolkien’s Mordor-minted creation in Lord of the Rings, the possibility of a U.S. default is filtering into certain asset prices.

Truth be said, the policy response to the COVID-19 market crash has been unorthodox so far and central banks are still buying securities by the tens of billions monthly even amid surging energy prices, supply chain bottlenecks, job shortages and above trend economic growth.

And talking about fairy tales, this week’s equity and bond selloff do seem to be pointing to the end of Goldilocks, that sweet spot when markets bask in an environment of not-too-hot, not-too-cold economic growth and inflation.

Yields are now quickly rising across the globe, MSCI’s gauge of stocks across the globe lost close to 1% over the quarter and portfolio managers are quickly rotating portfolios from growth stocks and tech, towards financial and energy shares, which typically thrive with inflation.

Meanwhile, the reality of China’s slowdown is sinking in.

Data just showed China’s factory activity unexpectedly shrank in September due to curbs on electricity use and elevated input prices.

Still, equity markets are inching higher with Asian shares outside Japan rising about 0.5%. The dollar is just off a one-year high and oil prices have cooled a bit.

Futures for European bourses and Wall street are pointing higher.

Key developments that should provide more direction to markets on Thursday:

— China manufacturing unexpectedly shrinks, services offer support

— China Evergrande shares swing as bondholders await word on payments

— Japan’s factory output extends declines on car production cuts

–UK economy bounced back by more than thought in Q2 before slowdown

— Cost inflation to dent Boohoo’s full year margins

— Diageo sees boost to margins as bars, restaurants open

— UK Q2 GDP/current account

— US Q2 final GDP/weekly jobless/final core PCE

(Reporting by Julien Ponthus)

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