Morning Bid: Great expectations | Reuters

Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., September 9, 2022. REUTERS/Brendan McDermid

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A look at the day ahead in the US and world markets from Mike Dolan.

If controlling inflation expectations is the main task of the US Federal Reserve, the latest polls can at least count as a tactical victory.

World markets head into Tuesday’s critical release of US consumer price data for August with high hopes that inflation has already peaked and is easing. Stock markets around the world rose and US stock futures set for further gains at the open. The dollar continued to slide.

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While consensus forecasts see headline annual inflation falling back to 8.1%, a full percentage point below June’s high, “core” rates, excluding food and energy, are expected to return to rise to 6.1% from 5.9%.

But hopes that the Fed’s interest rate hikes and falling retail gasoline prices are changing households’ inflation outlook were buoyed by Monday’s release of the Fed’s latest public survey of New York. read more

While a drop in the 3-year average inflation expectation to near a two-year low of 2.8% last month won’t change forecasts of another 75 basis point hike by the Fed next week, it will give policymakers already the markets some encouragement that the rate increases are working and temper the degree of tightening needed.

With the Federal Reserve also accelerating the pace of its balance sheet reduction, that optimism may be more important for the Treasury market, which saw lackluster auctions of 3-year and 10-year debt on Monday and faces a sell-off of 30 year bonds. on Tuesday. It was also a heavy day for sovereign debt sales in Germany, Italy and Japan.

The 25% drop in oil prices since the middle of the year has been a major factor, but crude prices continued to rise this week and Brent prices have firmed nearly 10% since late last week due to a variety of supply factors. Data released on Monday showed the US Strategic Petroleum Reserve fell to its lowest level since October 1984. read more

Still, stock investors have been inclined to see the glass as half full for now, especially with portfolios that are already so thin on stocks.

Investor allocation to global stocks was at its lowest point in September, according to Bank of America’s monthly survey of fund managers around the world. Cash holdings were at a record high and “long dollars” remained the “busiest trade” in the world, he said. read more

Fears of a global recession were reinforced by severe September sentiment surveys from Germany and the mixed picture for the British labor market in the three months to July. read more

Meanwhile, the Organization for Economic Co-operation and Development said economic output for the G7 as a whole already contracted 0.4% in the second quarter of 2022.

In banking, UBS (UBSG.S) it said it plans to increase its dividend by 10% and expects share buybacks in 2022 to exceed its $5 billion goal. read more

Goldman Sachs (SG.N) it will eliminate jobs as soon as this month after pausing the annual practice for two years during the pandemic. read more

Key developments that should provide further direction to US markets later on Tuesday:

* August US Consumer Price Index.

* US Treasury auctions 30-year bonds

inflation expectations
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By Mike Dolan; Edited by Muralikumar Anantharaman [email protected]. Twitter: @reutersMikeD

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The opinions expressed are those of the author. They do not reflect the views of Reuters News, which, according to the Trust Principles, is committed to integrity, independence and freedom from bias.

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