Marketmind: Risk on, risk off

A look at the day ahead in European and global markets from Anshuman Daga

Asian equity markets are flirting with six-month highs, powered by risk-on sentiment and hopes of a rebound in Chinese growth but inflation worries are looming ahead.

European company results kick-off in earnest on Wednesday, with retailer Sainsbury and JD Sports reporting.

Earnings from Britain’s biggest retailers are expected to confirm that while Christmas was not the disaster that some had feared, consumer demand is set to weaken in 2023, denting profit.

Trouble is brewing for Bayer AG as activist investor Bluebell Capital Partners has built a stake in the German pharmaceutical and agriculture company and is pushing for its breakup, Bloomberg reported, citing sources.

On the macro economic front, the World Bank cut its 2023 growth forecasts to levels teetering on the brink of recession for many countries as the impact of central bank rate hikes intensifies, Russia’s war in Ukraine continues and the world’s major economic engines sputter.

While Federal Reserve Chair Jerome Powell did not give any policy clues in a panel discussion in Stockholm overnight, Fed Governor Michelle Bowman said the central bank would have to raise interest rates further to combat high inflation.

The U.S. consumer price index report on Thursday is the big event for markets. The report is expected to show December’s headline inflation at 6.5% versus 7.1% in November.

Indications from the December U.S. jobs report released last week that wage inflation is slowing has provided some reassurance that inflation is past its peak, thus potentially giving the Fed leeway to slow its interest rate hikes.

Meanwhile, Prince Harry’s memoir “Spare” broke the UK’s sales record on the first day of its release, its publisher said, after days of TV interviews, leaks, and a mistaken early release of the memoir containing intimate revelations about the British royal family.

Key developments that could influence markets on Wednesday:

RESULTS: Sainsbury, JD Sports, Barratt Developments

(Reporting by Anshuman Daga; Editing by Jacqueline Wong)