Marketmind: A policy of least regrets

div classBodysc17zpet90 cdBBJodivpA look at the day ahead in markets from Dhara Ranasinghe.p

pOne would have thought markets would have got used to hawkish rhetoric from major central banks. Clearly not.pdivdivdiv classBodysc17zpet90 cdBBJodiv

pOvernight, Federal Reserve Chair Jerome Powell confirmed a halfpoint rate increase was “on the table” at the Feds May meeting, while other officials flagged the possibility of 75 basispoint moves.p

pThe Bank of England‘s Catherine Mann said borrowing costs would probably have to rise further, while hawkish remarks from notso hawkish members of the European Central Bank’s Governing Council shifted the dial again for bond marketsp

pMoney markets fully price in a halfpoint Fed move in May and some 80 bps of tightening in total from the ECB by yearend.p

pWhere does that leave markets？ European and U.S. bond yields are testing new highs, as London trading kicks off. After a stock market tumble in Asia, equity futures point to weakness ahead across Europe and on Wall Street. p

pSo, to the question of whether the increasingly aggressive stance by central banks triggers a sharp economic slowdown or contraction.p

pFlash purchasing managers indexes PMI out across the globe on Friday may offer clues, especially since they have proved resilient in the face of war in Ukraine and new supply chain blows.p

pRatesetters faced with surging inflation may choose to adopt the policy of least regrets — a phrase used by the Reserve Bank of New Zealand last week after it hiked rates by aggressive 50 bps.p

pIn short, its better to go hard against inflation now with big rate hikes, and risk a small recession, than have to hike more later and risk a bigger recession. Time will be the judge.p

pResilient PMIs to be put to the test https:fingfx.thomsonreuters.comgfxmktgdvzyawdwpwPMIS2204.PNGp

pKey developments that should provide more direction to markets on Friday: p

p– Japan March consumer prices rise at fastest pace in over 2 yearsp

p– S&P Global flash PMIs everywherep

p– Frances Macron consolidates poll lead after TV clashp

p– UK retail sales tumble as inflation jump hits demandp

p– UK PM Johnson will face contempt probe, reigniting leadership doubts p

p– International Monetary Fund and World Bank meetsp

p– European Central Bank President Christine Lagarde speaksp

p– European earnings: ASML, EssilorLuxotica, Renault, SAP, Volvo, p

p– Schlumberger, American Express, Newmont Mining, Verizon, Kimberley Clarkp

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pp Reporting by Dhara Ranasinghe editing by Sujata Raop

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