Morning Bid: Unstoppable dollar

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

Disagreement over interest rate increases is discernible.

Two ECB policymakers gave diverging views about the size of future rate hikes, pointing to some dissension over whether last week’s unprecedented 75 basis points rise should be repeated.

Investor angst about the risks of a growth slowdown is evident.

Germany’s bond yield curve briefly inverted on Thursday, while German bond yields scaled new 11-year highs at 1.539%.

But there seems to be little stopping the mightly dollar, already up 15% against a basket of currencies this year. Fed funds futures now point to a 25% chance of a 100 basis point hike at next week’s meeting.

That is giving support to dollar bulls, who have already battered the euro and yen to two-decade lows and sterling to its weakest in nearly 40 years.

Overnight, the World Bank came out with gloomy news.

It warned that the world may be edging toward a global recession as central banks across the world simultaneously increase rates to combat persistent inflation.

While the Fed meeting will be the biggest event for financial markets next week, regional focus will also be on expected increases by the Bank of England, and the Bank of Japan too.

On Friday, Asian stocks weakened on the downbeat economic assessments, despite data showing surprising resilience in China’s economy as factory output grew faster-than-expected and retail rales grew at the quickest in six months.

Investors seem to be more concerned about a deepening property slump in the world’s second-largest economy.

Meanwhile, a countdown has kicked off for what could be one of the world’ largest IPOs. Sources said Volkswagen’s (VOWG_p.DE) supervisory board will meet on Sunday to move forward with the IPO of its Porsche brand.

Key developments that could influence markets on Friday:

Economic data: Euro zone Aug final CPI

Speakers at events: ECB President Christine Lagarde and Bank of France Governor Francois Villeroy de Galhau; ECB Chief Economist Philip Lane

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